The blocking of Broadcom's proposed takeover of Qualcomm dragged the entire tech sector lower Tuesday.
The S&P 500 technology sector shed more than a percent in session trading, the sector's biggest drop since March 1.
Analysts credit the dip to an order from President Donald Trump on Monday banning a merger between the rival chipmakers.
It's not the death of the specific deal that sent stocks lower, they say — shares of Qualcomm held positive for some of the day even while the rest of the sector turned red — but rather the implications of the president's heavy hand.
Protectionist concerns
Trump's interjection into Broadcom's months-long takeover bid for Qualcomm could signal greater review of deals to come, B. Riley FBR chief market strategist Art Hogan told CNBC.
"What's really changed in the last 24 to 48 hours really feels like the regulatory tone," Hogan said. "The Broadcom-Qualcomm [deal], it seems to be a long-running drama, and out of the blue the administration opined on it."
That takes away the deal's "halo effect" on the tech sector and hangs doubt on future deals, Hogan said.
Tie-ups between Qualcomm and NXP, AT&T and Time Warner, and Disney and 21st Century Fox could all face regulatory challenges.
"There was a certain level of valuation baked into this sector for M&A," Hogan said.
Semiconductors
The semiconductor S&P 500 subsector — led by chip giants Intel, Nvidia and Texas Instruments— has led the tech stocks in the last 12 months, up nearly 45 percent year over year.
Qualcomm and Broadcom round out the subsector's top five companies by market cap, making a failed merger between the two companies particularly painful for the group, according to Scott Kessler, lead tech analyst at CFRA Research.
"This whole story is causing people to kind of take a step back because at the least it looks like you have an increasingly protectionist administration that is increasing tariffs and scuttling M&A," Kessler told CNBC. "Those things in the broad sense are probably not great for those in the semiconductor space or tech companies in general."
A lower leading subsector may have scared investors out of the tech market, Kessler said.
Semiconductor stocks shed more than a percent Tuesday, to more than 3 percent off their 52-week high.
"That's a pretty big swing," Kessler said. "It's been a great performer."
Trouble with China
A failed merger between Qualcomm and Broadcom has some investors worried about the Trump administration's tougher rhetoric on China.
"While most tech names including FANG stocks are relatively insulated from any China worries/headwinds, this is enough of a near-term concern for tech investors to take some profits after a golden run over the last few weeks with many of these names making new highs," GBH Insights' Dan Ives told CNBC.
National security concerns cited as rationale for blocking the deal boil down to a fear of Chinese companies entering U.S. telecommunications markets and beating the U.S. in the race to develop a 5G mobile wireless network.
Though Broadcom is based in Singapore and is in the process of redomiciling to the U.S., the Treasury Department has said, "China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover."
The blocked merger could indicate more severe barriers to China to come from the executive branch, analysts said.
Trump last week raised tariffs on steel and aluminum imports, heightening concerns of a trade war with China.
"The worry is with the ... Broadcom blockage from the Trump administration that this will add fuel to the fire in a battle versus China on the horizon over the coming 12 to 18 months," Ives said.
WATCH: Broadcom-Qualcomm deal blocked on security concerns
