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Will newly-launched National Security Investigation be another punch on semiconductor sector stocks?

4/17/2025 02:47pm

Aime

The deep research logic is organized as follows: 

Okay, let's tackle this question. The user is asking if the newly-launched National Security Investigation (NSI) will be another punch on semiconductor sector stocks. I need to provide a comprehensive analysis based on the provided references and background.

First, I'll start by understanding what the NSI entails. From references 1, 2, 3, 4, 5, 11, 13, 17, 21, 22, 23, and 39, it's clear that the U.S. Commerce Department initiated Section 232 investigations into semiconductor and pharmaceutical imports. This is part of the Trump administration's push to reduce reliance on foreign supply chains, particularly from China, Taiwan, and South Korea. The investigation aims to assess national security risks and could lead to tariffs or import restrictions.

Next, I need to consider the historical impact of such investigations. Reference 19 mentions a 2024 investigation into China's legacy chips, which led to potential tariffs. The current NSI is broader, covering not just legacy chips but also leading-edge chips, manufacturing equipment, and downstream products like smartphones. This expansion could have a wider impact on the sector.

Looking at the market reaction, reference 10 shows On Semiconductor's stock dropped -0.69% on 2025-04-17. Reference 15 lists several semiconductor stocks with negative percentage changes, indicating initial bearish sentiment. However, some companies like ASML Holding (reference 15) saw a slight increase, possibly due to expectations of domestic production incentives.

The user's interest in the NASDAQ Composite suggests they're concerned about broader market sentiment. The tech-heavy index's volatility (reference 6, 9) aligns with the semiconductor sector's sensitivity to trade policies. The NSI could exacerbate this volatility, especially if tariffs are imposed, leading to higher production costs and reduced demand for imported components.

Geopolitical factors are crucial here. References 12 and 13 note that countries like South Korea are increasing support for their semiconductor industries to counter U.S. tariff uncertainties. This could lead to a global race in semiconductor production, potentially benefiting domestic U.S. manufacturers but harming foreign competitors. However, companies like TSMC (reference 38) face challenges in meeting U.S. production demands, which might delay their ability to mitigate tariff impacts.

Analyst ratings (reference 20) show downgrades and lowered price targets for On Semiconductor, reflecting concerns about tariff risks. However, some firms maintain optimistic ratings, betting on long-term domestic production growth. This mixed sentiment indicates uncertainty, which is typical during periods of policy change.

The potential for accelerated domestic production (references 5, 11, 13) is a double-edged sword. While it could reduce reliance on foreign suppliers, the high costs and time required to build new facilities might lead to short-term supply constraints and higher prices for U.S. companies, negatively affecting their margins.

In conclusion, the NSI is likely to act as a near-term headwind for semiconductor stocks due to tariff fears and supply chain disruptions. However, long-term domestic production incentives could provide a floor or even upside for companies positioned to benefit. The user's focus on the NASDAQ Composite means they should monitor both sector-specific reactions and broader market sentiment, which might be influenced by the tech-heavy index's volatility in response to these policy changes.

Concluding Statement:
The newly-launched U.S. National Security Investigation (NSI) under Section 232 of the Trade Expansion Act will likely amplify near-term volatility in semiconductor sector stocks, particularly those exposed to critical supply chains reliant on foreign production. However, the investigation also creates potential long-term opportunities for domestic manufacturers and companies aligned with U.S. industrial policy goals. Below is the detailed analysis:

1. Key Implications of the NSI on Semiconductor Sector Stocks

Scope of the Investigation: The NSI targets semiconductors, semiconductor manufacturing equipment (SME), and downstream products (e.g., smartphones, laptops) ¹². This broad scope directly impacts companies like TSMC, Samsung, and U.S. firms reliant on foreign fabs (e.g., Intel, Qualcomm).
Tariff Risks: The investigation could lead to 25%–30% tariffs on imported semiconductors and electronics, similar to past Section 232 actions (e.g., steel tariffs in 2018) ⁵⁶. These tariffs would raise production costs for U.S. tech firms and reduce demand for imported components.
Geopolitical Focus: The probe emphasizes reducing reliance on China, Taiwan, and South Korea, which collectively account for ~85% of global semiconductor production ⁷⁸. This aligns with the Trump administration’s "America First" trade agenda.

2. Market Reaction and Sector-Specific Risks

Stock Performance:
- On Semiconductor (ON.O) fell -0.69% on April 17, 2025, reflecting concerns about tariff exposure and supply chain disruptions ⁹.
- Broader semiconductor stocks (e.g., Intel: -2.94%, Lam Research: -1.03%) also declined, driven by fears of reduced demand and higher input costs ¹⁰.
- TSMC (NYSE:TSM) and Samsung remain indirect beneficiaries of U.S. reshoring efforts, but their U.S. fabs lag 5 years behind Taiwan’s leading-edge capacity ¹¹, creating near-term vulnerabilities.

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ON Trend

Valuation Pressures: Semiconductor stocks trade at elevated P/E ratios (e.g., Credo Technology: 1,222x) ¹², making them sensitive to margin compression from tariffs or reduced demand ¹³¹⁴.

3. Catalysts for Long-Term Resilience

Domestic Production Incentives: The NSI could accelerate investment in U.S. fabs (e.g., Intel’s $100B fabs plan) ⁸, benefiting companies like KLA (semiconductor equipment) and Micron (memory chips) ¹⁵.
Technology Leadership: U.S. firms specializing in AI/ML chips (e.g., Nvidia) and silicon carbide (e.g., ON Semiconductor) are less exposed to legacy chip tariffs and better positioned to capitalize on domestic demand ¹⁶¹⁷.
Global Counter-Reactions: South Korea’s $23.25B semiconductor support package ⁷ and Taiwan’s $100B U.S. investment plan ¹⁸ signal a global race to secure supply chain resilience, which could mitigate U.S. tariff impacts.

4. Strategic Takeaways for Investors

Near-Term Risks: Expect continued volatility in semiconductor stocks, particularly those with high foreign supply chain exposure (e.g., Qualcomm, Broadcom) ¹⁰¹⁹.
Long-Term Opportunities: Focus on U.S.-based manufacturers (e.g., Intel, Lam Research) and companies aligned with domestic production goals (e.g., ASML’s U.S. fabs) ⁴⁸.
NASDAQ Composite Alignment: The tech-heavy index’s sensitivity to trade policy will amplify sector-wide swings. Monitor the index’s 8% decline post-tariff announcements for similar patterns ¹⁶¹⁷.

Final Assessment

The NSI is a double-edged sword for semiconductor stocks. While it introduces near-term headwinds via tariffs and supply chain disruptions, it also creates structural opportunities for U.S. leadership in critical technologies. Investors with a short-to-medium-term horizon should prioritize companies with diversified supply chains or direct exposure to domestic production incentives. For the NASDAQ-focused investor, this underscores the importance of balancing growth potential with policy-related risks.

Key Watchpoints:

U.S. Commerce Department’s public comment period (due May 7, 2025) ³.
Progress on Intel’s 18A node technology (expected H2 2025) ¹⁴.
South Korea/Taiwan’s U.S. investment timelines ⁷¹⁸.

Let me know if you’d like further granularity on specific stocks or policy scenarios!

Source:

1. Trump Admin Launches National Security Probe Into Pharma, Semiconductor Imports