Semiconductors Winners And Losers At The Start Of H2 2025: Geopolitical Shifts and Contrarian Plays

The semiconductor sector is at a crossroads in mid-2025, with geopolitical tensions, fiscal stimulus, and AI-driven demand reshaping the landscape. While U.S. protectionism and trade uncertainties dominate headlines, European fiscal firepower and underappreciated regional champions are creating asymmetric opportunities. This article identifies the contrarian plays emerging from divergent fundamentals and geopolitical realignments, while cautioning against overexposure to overheated AI stocks.

The Geopolitical Pivot: U.S. Protectionism vs. European Fiscal Aggression

The U.S. semiconductor strategy remains mired in contradictions. While the Biden administration's recent easing of AI chip export restrictions to China (effective July 2025) signals a tactical truce, broader export controls on advanced manufacturing tools and materials remain in place. The Foreign Direct Product Rule (FDPR) expansion in late 2024 continues to constrain China's access to U.S. tech, but Section 232 tariffs on semiconductors—still under review—loom as a Sword of Damocles. For chipmakers exposed to U.S.-China trade flows, the path forward is fraught with compliance costs and demand volatility.

Meanwhile, Europe is aggressively filling the void. Germany's €500 billion infrastructure plan—including €920 million for a state-of-the-art semiconductor plant in Dresden—is a masterstroke. The project, led by Infineon and supported by state subsidies, aims to reduce reliance on Asian foundries and secure supply chains for automotive, renewable energy, and defense systems. This mirrors broader European ambitions, with the EU's Critical Raw Materials Act and European Chips Act prioritizing semiconductor self-sufficiency.

Sector-Specific Winners: Onshoring, Defense, and Infrastructure Plays

1. GlobalFoundries: The Onshoring Champion

GlobalFoundries (GFS), a U.S.-listed pure-play foundry, stands out as a contrarian favorite. Its $10 billion Austin, Texas, fab—financed in part by the CHIPS Act—is nearing completion, positioning it to capture U.S. defense and automotive demand. Unlike pure-play AI stocks, GFS benefits from long-term, contract-driven revenue streams insulated from speculative AI cycles. Its 14nm and 22FDX processes are critical for sensors, IoT, and industrial applications, sectors less prone to demand swings.

2. European Defense and Infrastructure Plays

• Hensoldt (part of Airbus): A leader in radar and electronic warfare systems, Hensoldt's advanced semiconductor needs are directly tied to Germany's defense spending surge (€55 billion annually by 2030). Its gallium nitride (GaN) chips for radar systems are irreplaceable in modern defense tech.
• STMicroelectronics (STM): Exposed to both automotive electrification and European infrastructure projects, STM's power management chips are essential for high-voltage grids and EVs. Its stock trades at a discount to peers despite robust order backlogs.
• Rheinmetall (RHM): While primarily an armored vehicle manufacturer, Rheinmetall's in-house semiconductor R&D for battlefield AI systems leverages Germany's defense budget boom.

3. Asia's Underappreciated Fabs

• Tower Semiconductor (TSEM): A specialist in analog and mixed-signal chips, Tower's foundry services cater to industrial and automotive clients, sectors less affected by AI hype cycles. Its $1.7 billion fab in Japan (funded with government support) positions it to serve regional supply chains.
• SMIC: Despite U.S. restrictions, SMIC's 14nm capacity and government-backed R&D remain critical for China's non-AI sectors, such as IoT and consumer electronics.

The Overvalued Risks: AI Leaders in a Cooling Market

While AI-driven demand remains robust, overexposure to pure-play AI stocks like NVIDIA (NVDA) and AMD (AMD) poses risks. Both companies face a perfect storm of geopolitical headwinds and profit-taking pressures:

• NVIDIA: Despite its $40 billion AI data center revenue stream, the company's stock trades at a 35x forward P/E, reflecting peak expectations. Risks include:
• U.S. export restrictions on its H100/A100 chips for China.
• Section 232 tariffs on semiconductor imports, which could add 10-20% to BOM costs for AI hardware.

• Profit-taking: Institutions have reduced holdings by 12% since Q1 2025, signaling rotation to safer bets.

• AMD: Its AI GPU pipeline faces similar tariff risks, while its dominance in CPU markets is threatened by Intel's (INTC) Ponte Vecchio AI chips and ARM-based competitors. AMD's valuation (28x P/E) assumes flawless execution—a risky bet in a choppy macro environment.

Investment Strategy: Active Selection and Geographic Diversification

The semiconductor sector demands a contrarian, fundamentals-driven approach:

1. Prioritize Onshoring Plays: GlobalFoundries and Tower Semiconductor benefit from U.S. and EU subsidies, offering secular growth with less AI volatility.
2. European Defense and Infrastructure: Hensoldt and STMicroelectronics offer exposure to Germany's fiscal stimulus and defense spending, with limited China exposure.
3. Avoid Overvalued AI Stocks: Take profits on NVIDIA and AMD unless they can sustain supernormal growth rates.
4. Diversify Geographically: Allocate to Asian firms like SMIC (for China's non-AI demand) and Taiwan's TSMC (for its advanced node dominance, though it faces geopolitical risks).

Conclusion: The Time for Selective Conviction

The second half of 2025 offers a stark divide between semiconductor winners and losers. While U.S. protectionism and AI speculation dominate headlines, the real opportunities lie in geopolitical arbitrage—Europe's fiscal stimulus, defense spending, and onshoring trends. Investors who focus on regionally diversified, fundamentals-driven plays will outperform those chasing overheated AI stocks. The semiconductor sector is no longer a monolith; it's time to pick winners with the precision of a semiconductor lithographer.

This article is for informational purposes only. Investors should conduct their own research and consult with a financial advisor before making investment decisions.