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The AI Chip War: Why U.S. Export Controls Are Fueling China’s Semiconductor Surge—And What Investors Must Do Now

Wesley ParkTuesday, May 20, 2025 10:33 pm ET

27min read

The U.S. semiconductor export restrictions targeting China, now in full swing, are proving to be a textbook case of unintended consequences. While the Biden administration intended to curb China’s AI ambitions, it’s instead sparking a global tech arms race—and investors who ignore this shift risk missing one of the most profound opportunities in decades. Let’s unpack this volatile landscape and where to position your portfolio for maximum gain.

The Backfire: How U.S. Controls Are Supercharging China’s Tech Ambitions

Nvidia’s (NVDA) CEO Jensen Huang called the export controls a “failure” for a reason. The rules, designed to slow China’s AI progress by restricting advanced chips like the H100 and H20, have instead pushed Beijing to double down on self-reliance. China’s 344 billion yuan ($47.5B) semiconductor fund and aggressive investments in domestic firms like Huawei, Biren Technology, and Enflame are already bearing fruit. For instance, Huawei’s upcoming Ascend 910D chip is on track to rival Nvidia’s H100 in performance but at a fraction of the cost.

Meanwhile, U.S. firms are reeling. The $5.5B inventory write-down for Nvidia’s H20 chips—mandated because the U.S. now requires licenses for their export to China—epitomizes the policy’s myopia. The result? Nvidia’s China market share has plummeted from 95% to 50%, and competitors like AMD (AMD) and ASML (ASML) are also feeling the pain as Asian supply chains consolidate.

Investment Implications: Three Moves to Make Now

Near-Term: Short U.S. Chipmakers, Long on Asian Foundries
The U.S. semiconductor sector is in a liquidity squeeze. Companies like NVDA and AMD face $15B+ in lost sales to China, with no clear path to regain those markets. Instead, pivot to TSMC (TSM) and Samsung (SSNLF), the foundries manufacturing chips for China’s AI boom. TSMC’s advanced 3nm process is already powering next-gen Chinese AI designs, and its stock has held up despite the trade war.
Long-Term: Bet on China’s AI Infrastructure Play
China’s $50B annual AI market isn’t just a number—it’s a battlefield. Back firms enabling this ecosystem:
Semiconductor Manufacturing International Corp (SMICY): China’s leading chipmaker, now developing 7nm and 5nm nodes.
Yangtze Memory Technology (YMTC): Dominating NAND flash storage, critical for AI data centers.
Startups like Biren and MetaX: Focused on AI-specific chip architectures, which could outpace U.S. rivals in efficiency.

These companies are the backbone of China’s “70% self-sufficiency by 2030” goal.

Avoid Overexposure to Global Supply Chain Fragmentation
The U.S. is now targeting semiconductor manufacturing equipment (SME) exports, including ASML’s EUV lithography systems. This risks creating two tech blocs: U.S.-aligned and China-centric. Investors should steer clear of companies reliant on cross-border chip flows, like Intel (INTC) or Texas Instruments (TXN), and focus on vertically integrated players with diversified supply chains.

The Policy Wildcard: Watching for U.S. Reversals

Don’t count out a U.S. policy shift. If Biden’s administration realizes the export controls are accelerating China’s rise—and harming U.S. firms—it might soften its stance. Keep an eye on trade talks and geopolitical signals. A reversal could send NVDA and AMD soaring, but don’t hold your breath; China’s momentum is too strong.

Final Call: Pivot to Asia, But Stay Vigilant

This is a once-in-a-generation reallocation moment. The U.S. export controls have handed China a gift: a mandate to build its own tech empire. Investors who back Asian foundries and Chinese AI innovators now will be positioned to profit as this new order takes shape.

But don’t go all-in yet. Stay light on pure-play U.S. chip stocks until the trade war smoke clears. And keep a close watch on Washington—because if the U.S. course-corrects, you’ll want to be ready to pounce.

Action Plan:
- Buy: TSMC (TSM), SMICY, and sector ETFs like Global X Semiconductor ETF (SMH).
- Sell: U.S. chipmakers with heavy China exposure (NVDA, AMD).
- Watch: U.S.-China trade negotiations and policy shifts on SME exports.

The AI chip war isn’t just about chips—it’s about who will lead the next tech revolution. Don’t let this moment pass you by.

Disclosure: This article reflects analysis and opinions, not personalized advice. Always consult a financial advisor before making investment decisions.

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