Navigating the Semiconductor Storm: Finding Value Amid U.S.-China Trade Tensions

The escalating U.S.-China trade war has cast a shadow over global semiconductor markets, with tariffs, export controls, and retaliatory measures reshaping supply chains and valuations. Yet amid the chaos, a clear opportunity emerges: investors can capitalize on geopolitical volatility by identifying undervalued semiconductor firms that are insulated from trade headwinds. Unlike companies like KLA (KLAC), which Goldman Sachs recently deemed “neutral” due to its reliance on Chinese markets, select players are poised to thrive by diversifying supply chains, serving critical national security needs, or benefiting from U.S. policy tailwinds.

The Trade Tensions Landscape: A Zero-Sum Game?

As of July 2025, the U.S. has imposed Section 232 investigations on semiconductors, legacy chips, and critical minerals, threatening tariffs of 25% or higher. Simultaneously, China retaliates with 10–15% tariffs on U.S. agricultural goods and suspends imports of American logs and raw materials. The legal battles over fentanyl tariffs and the reinstatement of reciprocal duties further underscore the sector's instability.

However, this environment is not uniformly destructive. Firms with geographically diversified manufacturing, technologies deemed critical to national security, or exposure to U.S. government contracts are likely to outperform. For instance, companies supplying advanced chips for defense, AI, or high-performance computing stand to benefit from U.S. efforts to secure domestic supply chains.

Why KLA's “Neutral” Stance Signals Opportunity Elsewhere

Goldman Sachs' neutral rating on KLA (KLAC) reflects concerns over its exposure to China's semiconductor market and reliance on its supply chain. KLA's wafer inspection tools are critical to chip manufacturing, but its heavy presence in China—a market now facing retaliatory tariffs—leaves it vulnerable. Meanwhile, its valuation remains depressed due to broader sector pessimism.

This creates a contrast with firms better positioned to navigate trade risks. Consider Applied Materials (AMAT), a leader in semiconductor equipment used for advanced chip fabrication. Applied Materials' global footprint and focus on U.S.-friendly technologies (e.g., extreme ultraviolet lithography) align with the Biden administration's push for domestic production.

Key Investment Themes: Where to Look

1. Diversified Supply Chains:
   Firms like Texas Instruments (TXN), which maintain strong U.S. and European manufacturing bases, avoid overexposure to China's volatile markets. Their ability to shift production as trade policies shift provides a buffer against tariffs.

2. Critical Tech for National Security:
   Analog Devices (ADI), a supplier of semiconductors for defense systems and autonomous vehicles, benefits from U.S. policies prioritizing “secure” supply chains. Its recent acquisitions in AI and sensor technologies align with Pentagon spending priorities.

3. Export-Control Winners:
   ASML Holding (ASML), the Dutch giant dominating EUV lithography, has thrived under U.S. pressure to curb China's semiconductor ambitions. The U.S. has pressured allies to restrict advanced chip exports to China, a move that locks in ASML's dominance.

Data-Driven Insights: Valuations and Fundamentals

While the broader semiconductor sector trades at a P/E ratio of 18x, select companies offer better value:
- Intel (INTC): A P/E of 12x reflects skepticism about its manufacturing competitiveness, but its $20B investment in U.S. chip factories and AI-focused chips (e.g., Habana Gaudi) could reposition it as a national security asset.
- Lam Research (LRCX): A P/E of 15x contrasts with its 12% revenue growth in 2024, driven by U.S. and South Korean demand.

Conclusion: Position for Resilience, Not Retreat

The U.S.-China trade war is forcing a reckoning in the semiconductor sector—but not all companies are equally exposed. Investors should focus on firms with geopolitical insulation: those supplying critical tech to U.S. defense or infrastructure, or those with manufacturing footprints that avoid overreliance on China.

While Goldman's caution on KLA highlights risks in overexposed names, the sector's undervalued gems offer asymmetric upside. The path forward is clear: favor diversification, national security alignment, and the companies that Washington deems indispensable.

Trade wars are won by those who control the supply chain. The next move is yours.