U.S.-China Chip War: Navigating Risks and Rewards in Semiconductor Equipment Stocks

The U.S. decision to revoke export waivers for semiconductor equipment destined for China's factories has sent shockwaves through global supply chains. Effective June 20, 2025, companies like Taiwan Semiconductor Manufacturing Company (TSMC), Lam Research (LRCX), and Applied Materials (AMAT) face a critical crossroads: adapt to a fractured market or risk losing access to the world's largest chip market. For investors, this geopolitical pivot presents both peril and opportunity.

Immediate Market Fallout: A Semiconductor Sell-Off

The news of the waiver revocation triggered a sharp selloff in semiconductor stocks. TSMC's shares fell 2% on the news, while Lam Research and Applied Materials dropped 5% and 4%, respectively. These declines reflect investor anxiety over two immediate risks: supply chain disruptions and rising compliance costs.

The waivers had previously allowed U.S. equipment manufacturers like LRCX and AMAT to sell tools to Chinese factories without individual licenses. Now, companies must navigate a cumbersome licensing system for advanced equipment, potentially delaying production timelines and increasing costs. For example, Samsung's Xi'an NAND plant and SK Hynix's Wuxi DRAM facility will require new licenses for U.S. tools imported after June 2025—a process that could stall projects and eat into margins.

Long-Term Strategic Shifts: A New Semiconductor Order

While the short-term pain is clear, the policy shift also accelerates a geopolitical realignment of global chip manufacturing. The U.S. aims to lock China into mid-tier semiconductor capabilities by restricting access to cutting-edge tools, such as immersion lithography (dominated by ASML) and advanced deposition systems (LRCX's specialty). Beijing's $150 billion “Made in China 2025” ambitions now face a critical bottleneck: 90% of its advanced manufacturing relies on foreign equipment, with U.S. firms controlling key technologies.

This creates a paradoxical opportunity for U.S. equipment suppliers. As companies like TSMC and Samsung pivot to non-Chinese hubs—such as TSMC's $12 billion Arizona plant and Samsung's $17 billion Texas factory—they will lean heavily on American tools.

Analysts estimate global semiconductor equipment spending will grow 2% in 2025 and 18% in 2026, driven by AI infrastructure projects like the $500 billion “Stargate” initiative. Applied Materials' CEO Gary Dickerson has emphasized that AI-driven demand for leading-edge chips—such as those used in data centers—will fuel capital expenditures at foundries, directly benefiting equipment suppliers.

Revenue Exposure: Who's Most Vulnerable?

Not all semiconductor stocks are equally exposed. Applied Materials, which derives 25% of revenue from China (down from 43% in 2024), faces near-term headwinds but stands to gain from reshoring trends. Lam Research, with ~20% of revenue tied to China, also has room to pivot.

TSMC, however, faces a dual challenge: it must either absorb higher compliance costs in China or scale back operations there. The company's $40 billion 2025 capex plan—70% allocated to advanced nodes—hints at its reliance on U.S. equipment. Yet TSMC's ability to straddle U.S. and Chinese markets may give it a buffer, at least in the short term.

Investment Playbook: Where to Look for Resilience

1. U.S. Equipment Leaders: Buy the Dip
2. Lam Research (LRCX) and Applied Materials (AMAT) are core beneficiaries of the “compliance economy.” Their tools are essential for advanced nodes (e.g., 5nm), and reshoring projects will drive recurring demand. Both stocks appear undervalued relative to Nasdaq-100 peers, with LRCX trading at 14x forward earnings and AMAT at 12x.

1. Avoid Chinese Chip Stocks

2. Companies like SMIC or Yangtze Memory Technologies (YMTC) face existential risks. Without access to U.S. tools, their progress toward advanced nodes will stall, leaving them reliant on mid-tier chips with thin margins.

3. Look for Geopolitical Arbitrage

4. Foundries in non-Chinese markets—such as TSMC's Arizona plant or Intel's Ohio facility—are likely to see accelerated investment. Investors might consider broader semiconductor ETFs like the VanEck Semiconductor ETF (SMH), which holds LRCX, AMAT, and TSMC, but requires a long-term horizon.

Conclusion: A Divided Market, Unified Growth

The U.S.-China chip war has created a fractured landscape, but it's also a catalyst for structural change. While short-term volatility will persist—driven by licensing delays and diplomatic tensions—the long-term trajectory favors U.S. equipment suppliers. Investors who focus on companies with global supply chain flexibility and exposure to AI-driven capex can navigate this new order. For now, the playbook is clear: buy U.S. tools, avoid Chinese chips, and bet on the reshoring boom.