U.S.-China Chip Wars: Rotate into Rare Earth Metals and Semiconductor Tool Makers

The escalating U.S.-China semiconductor rivalry is reshaping global supply chains, creating both risks and opportunities for investors. With Washington's export controls on advanced chip equipment and Beijing's countermeasures targeting rare earth metals, the stage is set for a strategic pivot in sector rotation. Here's how to position portfolios for this high-stakes tech war.

The U.S. Export Controls: A Double-Edged Sword

The Biden administration's December 2024 restrictions on 24 types of chip-making equipment and software—critical for 7nm and smaller chips—have hit Chinese firms like SMIC and Huawei. These measures, coupled with adding 140 entities to the U.S. Entity List, aim to stifle China's AI and quantum computing ambitions. However, they've also backfired: U.S. chipmakers like Applied Materials (AMAT) face lost revenue, with its stock down 15% since early 2025 amid supply chain disruptions.

China's Countermove: Rare Earth Metals as a Weapon

In retaliation, Beijing has restricted exports of gallium, antimony, and germanium—minerals essential for semiconductor production. Gallium, for instance, is a key ingredient in chips for 5G and AI. China's dominance in these markets (supplying ~90% of gallium globally) has sent prices soaring, creating a structural shortage. Investors should focus on companies with exposure to these metals.

Rare Earth Leverage: Where to Invest

1. Gallium Miners:
2. Alkane Resources (ASX:ALK) (Australia): A major gallium producer, benefiting from China's export bans.

3. South32 (LON:S32) (global): A diversified miner with gallium byproducts.

4. Antimony and Germanium Plays:

5. First Quantum Minerals (TSX:FM) (Canada): Holds antimony assets.
6. Sibanye-Stillwater (NYSE:SBGL) (South Africa): Germanium exposure via its platinum group metals operations.

Semiconductor Toolmakers: Winners in the Decoupling Era

While U.S. chipmakers face headwinds, companies that supply non-U.S., non-China semiconductor equipment are positioned to gain. For example:
- ASML Holding (ASML) (Netherlands): Dominates EUV lithography tools, critical for advanced chips.
- Tokyo Electron (TOELF) (Japan): A leader in semiconductor processing equipment.

The Strategic Rotation Play

• Sell: U.S. chipmakers overly reliant on China (e.g., NVIDIA (NVDA), which lost $2.5B in revenue from blocked GPU sales).
• Buy: Rare earth miners and non-China toolmakers.
• Hold: Diversified semiconductor stocks with global supply chains (e.g., Intel (INTC)).

Risks and Considerations

• Geopolitical Volatility: Further escalation could disrupt supply chains and pricing.
• Overvaluation: Rare earth stocks may be overbought; consider periodic rebalancing.
• Subsidy-Driven Overcapacity: China's subsidies for domestic chip production might lead to oversupply in the long term.

Conclusion: Position for the Decoupled World

The U.S.-China chip war is here to stay. Investors should rotate capital into rare earth metals and non-U.S./non-China semiconductor toolmakers, which are insulated from the worst of the trade war fallout. While risks remain, the structural demand for these critical materials and technologies will likely outlast geopolitical noise.

Final recommendation: Allocate 10-15% of a tech portfolio to rare earth miners and 5-10% to toolmakers like ASML. Avoid pure-play U.S. chipmakers exposed to China.

This analysis synthesizes geopolitical trends, material shortages, and corporate strategies to highlight actionable investment themes in a fractured tech landscape.