Semiconductor Opportunities in the U.S.-China Tech Cold War: Identifying Undervalued Winners

The escalating U.S.-China trade war has reshaped the semiconductor industry into a geopolitical battleground. With tariffs, export controls, and supply chain reconfigurations, the sector now faces both risks and rewards. For investors, this is a critical moment to identify undervalued companies positioned to thrive amid geopolitical realignment. Let's dissect the landscape and uncover opportunities.

The Geopolitical Chessboard: Tariffs, Sanctions, and Strategic Moves

The U.S. and China are locked in a tech cold war, with semiconductors at its epicenter. Key developments include:

1. Tariff Escalation:
2. U.S. tariffs on Chinese semiconductors reached 145% by April 2025, while China retaliated with duties of up to 125% on American goods.

3. China's April 2025 ban on exporting critical materials like gallium and germanium (used in chip fabrication) has disrupted global supply chains.

4. Export Controls:

5. The U.S. expanded Section 232 investigations to include semiconductors, while maintaining strict limits on advanced chip exports to China.

6. China's self-reliance push, including a 95% global dominance in refining gallium and germanium, underscores its strategic leverage.

7. Strategic Realignments:

8. The U.S. CHIPS Act ($52B for domestic chip production) is driving reshoring, with TSMC's $12B Arizona plant and Intel's Ohio facility leading the charge.
9. China is accelerating AI and semiconductor R&D, with firms like DeepSeek and Alibaba narrowing the performance gap with Western models.

Valuation Metrics: Spotting Undervalued Plays

Amid this turmoil, semiconductor stocks are trading at mixed valuations. Let's analyze key players:

1. Taiwan Semiconductor Manufacturing (TSM): The Undervalued Giant

• EV/EBITDA: 10.91x (May 2025), a -12.78% drop from its 12-month average. This metric is below its 5-year average of 11.99x, signaling a discount.
• P/E (TTM): 32.02x (Nov 2024), elevated but justified by TSM's dominance in advanced nodes (e.g., 3nm).
• Why It's a Buy: TSM's scale, diversified customer base, and $53.27B TTM EBITDA make it a resilient play.
  

2. Lam Research (LRCX): Equipment Leader in a Rebuilding Supply Chain

• EV/EBITDA: 18.80x (June 2025), down -32.94% YoY, reflecting pricing pressures.
• Revenue Growth: 7% YoY to $7.10B (Q2 2025), driven by foundry and logic demand.
• Why It's a Buy: LRCX's wafer fabrication tools are critical to U.S. reshoring efforts. Its $1.57B cash flow supports reinvestment.
  

3. Applied Materials (AMAT): The Undervalued Workhorse

• EV/EBITDA: Data unavailable, but AMAT's role in semiconductor equipment and solar tech makes it a strategic pick.
• Recent Performance: Strong Q2 2025 results with 7% revenue growth and $2.63 EPS (up 28% YoY).
• Why It's a Buy: AMAT's diverse portfolio (semiconductors, displays, solar) buffers against sector volatility.

4. Value Plays: AMKR, COHU, and PENG

• Amkor Technology (AMKR):
• Price/Sales: 0.74x (vs. industry median 3.02x).
• EV/EBITDA: 6.0x (vs. 20.2x peer average).
• Cohu (COHU):
• Price/Book: 0.98x (vs. 2.29x median).
• Penguin Solutions (PENG):
• EV/EBITDA: 9.3x (vs. 20.2x industry).
• Why They're Undervalued: These companies offer exposure to testing, packaging, and niche semiconductor segments at discounts.

Avoid: ON Semiconductor (ON)

• EV/EBITDA: 10.96x, but its -52.78% EPS decline and -24.5% revenue drop (Q1 2025) highlight execution risks. A Zacks Strong Sell rating reflects investor skepticism.

Risks and Considerations

1. Tariff Truces: The July 2025 expiration of the U.S.-China semiconductor tariff truce could reignite volatility. Monitor diplomatic signals closely.
2. Supply Chain Bottlenecks: China's rare earth restrictions and U.S. reliance on foreign tools (e.g., ASML's EUV lithography) pose risks.
3. Inflation: U.S. core CPI at 2.9% (2025) pressures valuations, while China's deflation (-0.1% CPI) could hurt margin expansion.

Investment Strategy: Play the Geopolitical Hand

Overweight Semiconductor Equipment:
- Top Picks: AMAT, LRCX, and ASML (ASML's EUV dominance is a must-hold).

Value Plays for Diversification:
- AMKR, COHU, and PENG offer low multiples but require patience for turnaround catalysts.

Avoid Overhyped Names: Steer clear of ON and speculative AI startups lacking supply chain resilience.

Risk Management:
- Pair long positions with put options on semiconductor ETFs (e.g., SMH) to hedge against tariff shocks.
- Monitor the July 2025 tariff truce outcome as a critical inflection point.

Conclusion

The U.S.-China tech cold war is a double-edged sword for semiconductors: it creates risks but also rewards for agile investors. Companies like TSM, LRCX, and AMKR are undervalued relative to their strategic importance. Investors should prioritize firms with pricing power, diversified supply chains, and exposure to reshoring initiatives. The next six months will be pivotal—stay vigilant, and position for the winners of the next tech era.