Semiconductor Truce: Navigating the New Trade Landscape for Strategic Gains

The U.S.-China tariff truce announced on May 12, 2025, marks a critical inflection point in the decade-long tech war between the world’s largest economies. By suspending 24 percentage points of retaliatory tariffs on semiconductor-related goods, both sides have created a fragile but tangible window to alleviate supply chain bottlenecks and stabilize trade flows. For investors, this truce presents a strategic opportunity to capitalize on undervalued semiconductor equities—particularly those with cross-border operations or alternatives to Chinese chips—while navigating the risks of renewed protectionism.

The Truce’s Immediate Impact: Cost Savings and Supply Chain Relief

The 90-day suspension of tariffs on over $200 billion in goods—including semiconductors, fabrication equipment, and advanced chips—has already injected liquidity into the sector. Companies like ASML Holding (ASML), a Dutch giant supplying lithography machines critical for chipmaking, and Taiwan Semiconductor Manufacturing (TSM), the world’s largest foundry, stand to benefit from reduced cross-border costs. Meanwhile, U.S. firms like NVIDIA (NVDA), which saw billions in inventory write-downs due to prior export controls, may see resurgent demand for their AI chips in China if tensions ease further.

This data reveals that ASML’s stock has outperformed NVIDIA’s over the past five years, riding a wave of demand for advanced fabrication tools. However, NVIDIA’s valuation multiples—now at a 30% discount to its 2021 peak—signal a potential buying opportunity if U.S.-China trade flows normalize.

The Huawei Dilemma: A Catalyst for Innovation or a New Friction Point?

The U.S. decision to restrict Huawei’s use of its Ascend AI chips has created a paradoxical opportunity. While the move aims to stifle China’s AI development, it has also accelerated demand for alternatives—such as NVIDIA’s H20 series or AMD’s (AMD) EPYC processors—to fill the void. Chinese firms like Huawei’s HiSilicon and SMIC are racing to close the gap, but their progress depends on access to U.S. technology, which remains constrained.

Investors should prioritize companies with dual-sourcing capabilities or partnerships with non-Chinese suppliers. For example, Intel (INTC), which recently expanded its 200mm wafer production in Arizona, and Applied Materials (AMAT), a leader in semiconductor equipment, are positioned to capitalize on reshored manufacturing demand while benefiting from reduced trade frictions.

Valuation Gaps: Where to Find Value

The semiconductor sector is bifurcated: U.S. chipmakers trade at historic lows relative to their growth potential, while Chinese peers face lingering geopolitical headwinds.

• U.S. Equities:
• NVIDIA (NVDA): Trading at 25x forward earnings vs. a five-year average of 45x, despite its dominance in AI chips.

• Texas Instruments (TXN): A stable analog chip leader with a 2.5% dividend yield and a P/E of 20, below its 25x historical average.

• Chinese Equities:

• SMIC (SMICY): Struggles with U.S. export controls but holds a 40% market share in China’s domestic foundry industry. Its valuation at 5x forward earnings reflects extreme pessimism.
• Huawei’s HiSilicon (indirectly via HWT): While not publicly listed, its chip development efforts could unlock value for suppliers like Tiangong Semiconductor.

Risks: The Shadow of Renewed Protectionism

The truce is far from permanent. The 90-day window may extend talks, but unresolved issues—such as critical minerals dominance (China controls 80% of rare earth processing) and fentanyl disputes—threaten to reignite hostilities. Investors must monitor three key risks:
1. Export Controls: U.S. restrictions on advanced chips for Chinese AI labs could expand.
2. Technological Decoupling: China’s push for self-reliance in semiconductors (via its “Made in China 2025” plan) could fragment global supply chains.
3. Geopolitical Volatility: Any breakdown in U.S.-China dialogue over Taiwan or the South China Sea could derail progress.

A Strategic Call to Action

The semiconductor sector is at a crossroads. The tariff truce has reduced near-term volatility, but long-term success hinges on resolving tech competition. Investors should:
- Buy U.S. chipmakers at discounts, focusing on AI leaders like NVIDIA and infrastructure plays like Applied Materials.
- Dip toes into Chinese semiconductor stocks, using the truce as a catalyst for rebounds, but remain prepared for volatility.
- Avoid pure-play Huawei suppliers until the U.S. lifts restrictions on its AI chip ecosystem.

The path to profit lies in companies that can de-risk supply chains (e.g., Intel’s U.S. factories) or diversify markets (e.g., ASML’s global customer base). The truce is no panacea, but it offers a rare chance to position for the next phase of the tech race—before the next escalation.

Final Note: Monitor the next round of U.S.-China talks (expected by August 2025) and the Federal Reserve’s rate decisions, which could further influence semiconductor demand. Diversification and a long-term horizon are critical.