U.S.-China Trade Tensions and Semiconductor Stocks: Capitalizing on Geopolitical Uncertainty

The U.S.-China trade war has reshaped global supply chains, but for semiconductor investors, it presents a unique opportunity to identify undervalued stocks with strategic exposure to U.S. manufacturing incentives. As geopolitical tensions drive a historic shift in chip production, companies that have secured funding under the CHIPS Act are primed to capitalize on this transformation. Here's how to navigate the risks—and seize the rewards.

The Geopolitical Catalyst: Why Semiconductors Are Ground Zero

The U.S. and China are locked in a battle for control of the $600 billion semiconductor industry, which underpins everything from smartphones to AI. U.S. policymakers view China's dominance in chip manufacturing as a national security threat, while Beijing's subsidies and trade restrictions have intensified the rivalry. This tension has accelerated the CHIPS Act's mission: to rebuild U.S. semiconductor capacity by offering tax credits, grants, and loans to companies willing to “onshore” production.

The CHIPS Act: A Lifeline for Strategic Players

Since 2020, the CHIPS Act has allocated over $32.5 billion in grants and $5.85 billion in loans to companies expanding U.S. manufacturing. The program's 35% tax credit (up from 25% under the original law) and strict guardrails—banning stock buybacks and collaborations with “foreign entities of concern”—are designed to ensure capital is deployed for national resilience.

The key beneficiaries are those with two critical advantages:
1. Strategic projects aligned with U.S. priorities, such as advanced logic chips (critical for AI and defense) or mature-node chips (used in cars and industrial systems).
2. A proven track record of executing large-scale, capital-intensive projects.

Top Picks: Undervalued Stocks with Geopolitical Tailwinds

1. TSMC (TSM): The Foundry Leader with U.S. Bet

TSMC's $65 billion investment in Arizona—backed by a $6.6 billion CHIPS grant—is a geopolitical masterstroke. While its stock has lagged broader markets due to near-term demand concerns, its long-term role as the sole supplier of advanced 3nm and 2nm chips to U.S. firms like AMD and NVIDIA makes it a beneficiary of both trade tensions and the CHIPS Act's advanced manufacturing focus.

Why it's undervalued: Analysts expect TSMC's U.S. fabs to reach full capacity by 2030, but current valuations don't yet reflect this.

2. Intel (INTC): Rebuilding U.S. Chip Sovereignty

Intel's $100 billion push to modernize its Arizona and Ohio facilities—supported by an $8.5 billion CHIPS grant—positions it to reclaim leadership in domestic chipmaking. Its “Secure Enclave” program, funded by a $3 billion federal grant, directly addresses national security needs, shielding defense systems from supply chain vulnerabilities.

Why it's a buy: Intel's stock trades at 7x forward earnings, well below its 10-year average. Its shift toward contract manufacturing (competing with TSMC) and AI-driven growth could reaccelerate in 2025.

3. Micron (MU): Memory Chips, U.S. Reliance, and Bargain Pricing

Micron's $6.1 billion CHIPS grant is funding new DRAM factories in Idaho and New York—critical for U.S. data centers and AI systems. With global DRAM pricing stabilizing and U.S. demand for domestic memory production surging, Micron's valuation (P/E of 12) offers a margin of safety.

Why it's undervalued: Micron's stock has underperformed due to cyclical memory oversupply, but its U.S. projects insulate it from geopolitical risks tied to Asian competitors like Samsung.

4. GlobalFoundries (GFS): Mature-Nodes and U.S. Resilience

GlobalFoundries' $1.5 billion CHIPS grant is funding expansions in mature-node chip production—critical for automotive and industrial sectors. With 95% of global mature-node capacity still in Asia, GFS's U.S. factories fill a strategic gap. Its stock trades at 5x cash flow, a discount to peers.

Why it's a sleeper pick: Its niche focus on non-advanced chips (less volatile than cutting-edge semiconductors) reduces execution risk while capitalizing on U.S. supply chain needs.

Risks to Consider

• Overhang of Trade Policies: Trump's proposed tariffs on Chinese-made chips could disrupt global supply chains, but they also accelerate the onshoring trend.
• Execution Delays: Semiconductor projects require years to complete; companies like TSMC or Intel face risks of cost overruns or technological hurdles.

Investment Strategy: A Geopolitical Hedge

Investors should overweight TSMC and Intel for their leadership in advanced and secure manufacturing, while using Micron and GlobalFoundries as lower-risk plays on supply chain resilience. Pair these with sector ETFs like SOXX for broad exposure, but emphasize the CHIPS Act beneficiaries.

Final Takeaway

The U.S.-China trade war has created a once-in-a-generation opportunity to invest in semiconductor companies that are literally building the infrastructure of the future. By focusing on firms with CHIPS Act funding, strategic project milestones, and exposure to U.S. national security needs, investors can turn geopolitical risk into rewarding returns.

Stay disciplined, but don't overlook the groundswell.