Navigating the U.S.-China Tech Divide: Semiconductor Stocks to Bet On in the Trade War Era

The U.S.-China trade war has evolved into a high-stakes battle over semiconductor dominance, with tariffs, subsidies, and export controls reshaping global supply chains. For investors, this turmoil presents a unique opportunity to identify undervalued tech stocks resilient to geopolitical headwinds. Companies with diversified supply chains, exposure to U.S. subsidies like the CHIPS Act, and technological leadership are positioned to thrive—regardless of tariff escalations. Here's how to capitalize on this divide.

The Tariff Landscape: A Complex Web of Barriers

U.S. tariffs on Chinese semiconductors now stand at 80% effective rates, combining 50% under Section 301 (post-2024), 20% for fentanyl-related duties, and 10% under a temporary reciprocal tariff truce. China retaliates with 125% tariffs on U.S.-origin chips but exempts non-U.S. made chips (e.g., TSMC's Taiwan-produced chips). This creates a fragmented market where geographic diversification matters most.

Winners from the CHIPS Act: U.S. Subsidy Beneficiaries

The $52 billion CHIPS Act is fueling a reshoring boom, benefiting companies with access to U.S. funding and advanced tech:

1. Intel (INTC):
2. Play: Investing $20 billion in its Ohio fab and developing AI-centric Habana Gaudi chips.
3. Edge: Leverages U.S. subsidies while countering Chinese competition with AI-specific hardware.
4. Risk: Overcapacity concerns if global foundries (e.g., TSMC) also expand.

1. TSMC (TSM):
2. Play: Holds 54% of the global advanced node (3nm+) market, with partnerships to secure CHIPS Act funds for U.S. facilities.
3. Edge: Technological superiority and geographic diversification (Taiwan, U.S., Japan).
4. Risk: Diplomatic pressures in Taiwan.

Critical Suppliers: Monopolies in Equipment and Tools

The real winners are semiconductor equipment makers, as every $1 billion in U.S. foundry investment requires $200–300 million in equipment spending. Their monopolies insulate them from trade wars:

1. ASML Holding (ASML):
2. Monopoly: Controls 100% of EUV lithography machines (critical for 5nm+ chips).
3. Demand: A $25 billion backlog and $5 billion in CHIPS Act-linked orders.
4. Stock: Undervalued at ~25x 2025E EPS (vs. 30x historical average).

1. Applied Materials (AMAT):
2. Dominance: 65% global share in deposition/etching systems.
3. Margin Strength: 35% EBIT margins, with CHIPS Act-funded U.S. fabs driving demand.

Market Share and Tech Leadership: Why China Lags

Chinese firms like SMIC remain stuck at 14nm nodes due to U.S. bans on EUV and high-purity silicon wafers. Their AI advancements are stifled by U.S. restrictions on design software (Cadence, Synopsys). This technological gap ensures U.S.-aligned firms dominate critical segments:

• HBM (High-Bandwidth Memory): U.S. restrictions limit China's access, favoring suppliers like Samsung and SK Hynix.
• AI Infrastructure: NVIDIA (NVDA) and Intel's AI chips dominate, with no Chinese equivalent.

Investment Strategy: The Undervalued and Resilient

Focus on firms with geographic diversification, subsidy-backed growth, and moats in critical tech:

1. TSMC (TSM): Buy the global leader in advanced nodes. Risks are offset by its unmatched scale.
2. ASML (ASML): A “moat stock” with no competition in EUV—ideal for long-term holds.
3. Applied Materials (AMAT): High margins and CHIPS Act tailwinds make it a reliable beneficiary.
4. Intel (INTC): Dip buyers' choice—valuation is low, but AI and CHIPS Act investments could unlock upside.

Risks and the Bottom Line

Geopolitical risks persist, including overcapacity post-2026 and quantum computing breakthroughs. However, the firms listed above are positioned to weather these storms. The U.S.-China tech divide is here to stay—invest in the companies that profit from it.

Final Take: Bet on semiconductor leaders with global supply chains and U.S. subsidy backing. ASML and TSMC are no-brainers; Intel offers a value play. Avoid Chinese stocks like SMIC—they're trapped in a losing battle.