Building Resilience: Contrarian Plays in the U.S. Construction Sector Amid Tariff Turbulence

The U.S. construction sector is navigating a perfect storm of rising material costs, supply chain bottlenecks, and weakening demand—fueled by pending tariffs on copper, lumber, and semiconductors. For contrarian investors, this moment of uncertainty presents a rare opportunity to identify undervalued firms positioned to thrive once the dust settles.

The Headwinds: Tariffs and Cooling Demand

The Department of Commerce's ongoing Section 232 investigations into copper and lumber imports (set to conclude by late 2025) threaten to impose 25% tariffs on these critical materials. If enacted, these tariffs would amplify costs for residential builders already grappling with a 1.2 million-unit housing deficit and mortgage rates between 6-7%. Meanwhile, semiconductors—vital for construction equipment automation—face geopolitical risks as China's export restrictions on rare earth minerals disrupt global supply chains.

The ripple effects are stark:
- Steel and aluminum tariffs (already at 25%) have pushed material costs higher, delaying nonresidential projects by 6.5 months compared to 2019.
- Builder pessimism is at a 10-year high, with the National Association of Home Builders' index hitting a decade-low in Q1 2025.

Yet beneath the surface, three resilient opportunities are emerging:

1. Public Infrastructure Plays: The Silver Lining of Federal Funding

While private nonresidential spending is slowing, federal projects—backed by the Bipartisan Infrastructure Law and CHIPS Act—are moving forward. Contrarian investors should focus on firms like Fluor (FLR) and AECOM (ACM), which dominate public-sector contracts for bridges, railways, and water systems.

These companies benefit from guaranteed funding streams and are insulated from residential demand volatility. Additionally, USG Corporation (USG), a leading manufacturer of construction materials, could rebound if tariffs on imported gypsum are excluded, preserving its cost advantage.

2. Data Centers: The “Recession-Proof” Construction Segment

The rise of cloud computing and AI has made data center construction a pillar of resilient demand. Firms like Equinix (EQIX) and QTS Realty Trust (QTS) are capitalizing on hyperscale projects, with demand driven by federal agencies and tech giants.

Unlike residential or commercial real estate, data centers require specialized semiconductors and uninterrupted power supply systems—sectors where U.S. manufacturers are already gaining ground.

3. Semiconductor-Savvy Equipment Suppliers

While tariffs on semiconductors loom, firms like Caterpillar (CAT) and Deere (DE) are hedging risks through vertical integration. Caterpillar's recent $2 billion investment in a U.S. engine plant includes partnerships with domestic chip suppliers, reducing reliance on Taiwan.

These companies also benefit from infrastructure spending, as heavy equipment is a cornerstone of public projects.

The Contrarian Edge: Timing the Tariff Timeline

Investors should act now for two reasons:
1. Valuations Are Depressed: Construction stocks trade at 10-year lows relative to broader markets, even as long-term demand for infrastructure remains robust.
2. Tariff Delays Create a Buying Window: The Section 232 reports aren't due until late 2025, meaning tariffs could be delayed or diluted by political negotiations.

Final Call: Act Before the Surge

The construction sector's turbulence is temporary. For investors with a 3–5 year horizon, now is the time to position in infrastructure plays, data center operators, and equipment suppliers with domestic semiconductor ties. The sector's consolidation will reward those who buy low—and hold firm.

The foundation for growth is laid—now is the time to build.