Why Navitas Semiconductor Stock Plummeted Last Week

Key Points

• Navitas stock sank early in last week's trading in response to U.S.-China trade news.

• A trade agreement between the U.S. and China could eventually mean that Navitas winds up facing far more competition.

• Selling into the Chinese market presents big opportunities for Navitas, but competition from Chinese suppliers is a long-term risk factor.

• 10 stocks we like better than Navitas Semiconductor ›

Navitas Semiconductor (NASDAQ: NVTS) stock saw big sell-offs in conjunction with news on the trade front last week. The company's share price fell 9.2% from where it stood at the previous week's market close. Meanwhile, the S&P 500 was down 2.4%, and the Nasdaq Composite slipped 2.2%.

Navitas' valuation got hit with a steep pullback early in the week due to fresh developments in the trade war between the U.S. and China. On the other hand, the company's share price actually saw substantial recovery later in the week after it was announced that the tech specialist had won a new battery contract with a major Chinese customer.

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Navitas stock saw wild swings on China-related news

The Trump administration announced on July 28 that it had paused restrictions preventing semiconductors for artificial intelligence (AI) and chip manufacturing equipment from being sold to China. The administration lifted the restrictions in order to increase the chances of getting a trade deal done with China, and it's possible that a trade agreement between the two countries could create some headwinds over the long term for Navitas. The tech specialist produces gallium nitride (GaN) power chips and silicon carbide (SiC) technologies, and a trade deal could reduce competitive barriers and mean that the company winds up facing pressures from Chinese suppliers in its core product categories.

Navitas' trade situation is complicated

While Navitas stock suffered a big pullback early in the week in response to trade news, its share price saw some significant recovery after the company announced it was providing technology for a new device charger from Xiaomi -- one of China's largest tech players. Xiaomi's next-generation 90W GaN charger will make use of Navitas' GaNSense Control integrated circuits.

The Chinese market presents potentially massive opportunities for Navitas, but there's also a risk that competition from other GaN and SiC suppliers in the country will lead to commodification trends that hurt its long-term outlook.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.