Semiconductors and AI: Navigating the Geopolitical Tech Divide for Profitable Opportunities

MarketPulseSunday, Jun 22, 2025 3:51 pm ET
130min read

The escalating U.S.-China trade war and technological decoupling have reshaped global supply chains, creating both risks and opportunities for investors in the semiconductor and AI sectors. As tariffs, export controls, and intellectual property (IP) disputes intensify, companies with exposure to U.S. government incentives, advanced R&D, and domestic manufacturing are poised to thrive. However, the path to profit is fraught with geopolitical volatility, regulatory uncertainty, and valuation risks. Below, we dissect the investment landscape and offer actionable insights.

The Drivers of Tech Decoupling

The U.S. and China are engaged in a high-stakes battle for technological dominance, with semiconductors and AI infrastructure at the core. Key developments include:
- Export Controls: U.S. restrictions on advanced semiconductor tools (EDA software, EUV lithography) and AI chips have crippled Chinese firms like Huawei, which now faces a production cap of 200,000 Ascend AI chips in 2025.
- Tariffs: Steel and aluminum tariffs now exceed 95% on some Chinese goods, while reciprocal tariffs remain at 30% post-Geneva talks. The federal court's invalidation of “fentanyl” tariffs complicates trade frameworks.
- CHIPS Act Funding: The U.S. has allocated $32.5 billion in grants and $5.85 billion in loans to 32 companies, accelerating reshoring of semiconductor production.

Investment Opportunities in Semiconductors

The reshoring of critical tech supply chains favors companies with strong ties to government subsidies and cutting-edge R&D:

  1. ASML Holding (ASML):
  2. Why Invest: Monopoly on extreme ultraviolet (EUV) lithography tools critical for advanced chip manufacturing. Secured $4.3 billion in R&D funding in 2023 and benefits from CHIPS Act grants.
  3. ASML Closing Price, R&D Expenses
  4. Risk: Overvaluation; shares trade at 35x forward earnings.

    Ask Aime: Best semiconductor stocks amidst US-China trade tensions?

  5. TSMC (TSM):

  6. Why Invest: $100 billion expansion in the U.S. includes three new fabs and advanced packaging facilities. Already holds $6.6 billion in CHIPS grants for its Phoenix project.
  7. Risk: Cost overruns; tariffs could add $6.4 billion to its projects.

  8. Texas Instruments (TXN):

  9. Why Invest: Secured $1.61 billion in CHIPS grants to build three new Texas/Utah fabs. Focus on analog chips for AI and EVs aligns with long-term demand trends.
  10. TXN Closing Price

  11. Applied Materials (AMAT):

  12. Why Invest: Supplies deposition and etching tools for chip fabrication. R&D spending hit $2.5 billion in 2023, supported by CHIPS Act funding. Outperformed peers by 10% YTD in 2025.
  13. Risk: Overexposure to cyclical semiconductor demand.

AI Infrastructure: The Next Frontier

The AI chip race is accelerating, with U.S. firms gaining an edge as Chinese rivals face export bans. Key plays include:

  • NVIDIA (NVDA):
  • Why Invest: Dominates the generative AI chip market with its H100 and H800 GPUs. The U.S. rollback of Biden-era AI export restrictions could unlock $500 billion in global demand by 2028.
  • NVDA Total Revenue YoY, Total Revenue
  • Risk: Compliance costs as regulations evolve.

  • AMD (AMD):

  • Why Invest: Partnerships with cloud providers for data center chips and AI accelerators. Its EPYCTM processors are critical for large-scale AI training.
  • Risk: Intense competition with Intel (INTC).

Risks to Consider

  • Overvaluation: Stocks like ASML and NVDA trade at premium multiples, requiring sustained growth to justify valuations.
  • Geopolitical Volatility: A U.S.-China trade détente or abrupt policy shifts (e.g., tariff reversals) could disrupt supply chains.
  • Cost Pressures: CHIPS Act reshoring projects face 30–50% higher costs than Asian manufacturing, risking profitability.

Investment Strategy

  • Core Positions: Allocate 40–50% to ASML and TSM for their structural advantages in critical tech.
  • Growth Plays: Deploy 20–30% in NVIDIA and AMD for AI infrastructure exposure.
  • Safety Buffer: Hold 15–20% in cash to capitalize on dips caused by tariff/legal headlines.
  • Avoid: Chinese semiconductor stocks (e.g., SMIC) until trade frameworks stabilize.

Conclusion

The U.S.-China tech divide has created a “winner-takes-most” scenario for companies at the intersection of advanced semiconductors and AI. While geopolitical risks loom, the CHIPS Act and AI adoption tailwinds offer high-growth avenues. Investors should prioritize firms with irreplaceable technologies, government backing, and diversified end markets. Proceed with caution, but do not miss the transformative opportunities emerging from this new era of technological decoupling.