The Global Semiconductor Race: Key Developments, Risks, and Opportunities for Investors

• U.S. Export Controls Tighten: Stricter rules target China’s access to advanced chip technologies, impacting global supply chains.
• Global Investments Surge: Massive funding in domestic semiconductor production highlights the global race for chip self-sufficiency.
• AI Drives Demand: The rise of AI and data-driven technologies fuels unprecedented growth opportunities for leading semiconductor companies.

The semiconductor industry is a cornerstone of the digital economy, powering everything from generative AI to everyday electronics. Recent developments, including US export controls targeting China, major investments in domestic chipmaking, and intensifying global competition, have put this critical sector in the spotlight. As nations and corporations vie for leadership in this essential industry, investors are presented with both significant opportunities and complex risks.

This article explores the latest trends and their implications for the global semiconductor landscape.

Key Takeaways

1. US Export Controls Tighten the Noose on China

The US has implemented a series of export restrictions to curb China’s ability to produce advanced semiconductors. These include limits on high-bandwidth memory (HBM), key AI chips, and cutting-edge manufacturing equipment. Over 140 Chinese entities, including Semiconductor Manufacturing International Corporation (HKEX: 981) and Huawei, have been blacklisted, effectively cutting them off from US technology.

This crackdown is part of a broader strategy to maintain US dominance in critical technologies while addressing national security concerns. The Biden administration’s policies, which could see further acceleration under the incoming Trump administration, aim to restrict China’s access to tools that could bolster its AI and military capabilities.

However, these restrictions don’t just impact China. US companies like Nvidia (NASDAQ: NVDA) and Micron Technology (NASDAQ: MU), which have significant exposure to the Chinese market, must pivot to new strategies and markets to mitigate risks.

2. The Global Supply Chain Faces New Challenges

The semiconductor supply chain is one of the most complex and globally interconnected systems, heavily reliant on Taiwan and South Korea for manufacturing. Taiwan Semiconductor Manufacturing Co. (NYSE: TSM) and Samsung Electronics (KRX: 005930) dominate advanced chip production, with TSMC alone handling over 90% of the world’s leading-edge chip fabrication.

While this setup has fueled technological growth, it also creates vulnerabilities. The US is now actively seeking to reduce its dependence on these facilities by investing in domestic manufacturing. Other countries, including Japan, India, and Germany, are following suit, but establishing comparable capabilities will take years.

China, for its part, is ramping up investments in analog chips and building a shadow manufacturing network through Huawei. However, the country’s technological progress is limited by its inability to access cutting-edge tools like extreme ultraviolet (EUV) lithography machines, leaving it several generations behind global leaders.

3. Massive Investments in Domestic Semiconductor Production

Governments worldwide recognize the strategic importance of semiconductor manufacturing and are committing billions to build local capabilities:

• United States: The CHIPS and Science Act allocates $39 billion in grants and $75 billion in loans and guarantees to support domestic chip production. Major beneficiaries include Intel (NASDAQ: INTC), which is expanding its US manufacturing footprint.
• European Union: A $46.3 billion investment plan aims to double the bloc’s semiconductor output to 20% of the global market by 2030. Notable projects include TSMC’s new foundries in Germany and Japan.
• India: $15.2 billion has been allocated for new fabrication plants, including a Tata Group proposal to build the country’s first major chipmaking facility.
• Japan: Homegrown ventures like Rapidus Corp. aim to mass-produce 2nm logic chips by 2027, with substantial government support.

These investments signal a global shift toward self-sufficiency in semiconductor production, creating opportunities for local suppliers and manufacturers while reducing dependency on East Asia.

4. Corporate Developments and Strategic Moves

Intel’s Leadership Shakeup

Intel, once a dominant player in the semiconductor industry, has faced challenges in recent years as rivals like Nvidia and TSMC surged ahead. The unexpected resignation of CEO Pat Gelsinger underscores the company’s struggles to regain competitiveness. Intel is now focusing on becoming a major player in contract chip manufacturing, directly competing with TSMC and Samsung.

Stock Splits Signal Optimism

Several companies, including Arista Networks (NYSE: ANET) and Palo Alto Networks (NASDAQ: PANW), are planning stock splits to improve accessibility for retail investors. These moves reflect confidence in future growth and highlight the sector’s potential for long-term gains.

Nvidia’s Continued Dominance

Nvidia remains a leader in AI and advanced computing, with its H100 AI accelerator chip in high demand. The company’s dominance in AI-driven applications positions it as a critical player in both commercial and national security domains.

5. The Role of AI in Driving Semiconductor Demand

Artificial intelligence and data-driven technologies are revolutionizing industries, creating unprecedented demand for advanced semiconductors. High-bandwidth memory (HBM) and advanced-node integrated circuits are essential for training AI models and powering data centers.

Key Players:

• Nvidia (NASDAQ: NVDA): A leader in GPUs and AI chips.
• Micron Technology (NASDAQ: MU): A key supplier of memory solutions.
• Broadcom (NASDAQ: AVGO): Focused on infrastructure and connectivity chips.

As AI applications continue to grow, these companies are poised for significant gains.

What to Invest In

1. AI-Focused Semiconductor Companies

Invest in companies leading the charge in AI and advanced computing, such as Nvidia, Advanced Micro Devices (NASDAQ: AMD), and Micron Technology.

2. Chipmakers with Global Expansion Plans

Firms like TSMC and Intel are expanding operations globally, making them attractive for long-term investments.

 3. Manufacturing Equipment Suppliers

Companies like Applied Materials (NASDAQ: AMAT) and Lam Research (NASDAQ: LRCX) are critical suppliers for the semiconductor industry, benefiting from global investments in new fabrication plants.

Key Risks

1. Geopolitical Tensions

Taiwan remains a potential flashpoint for conflict, with any disruption to its chip production likely to have catastrophic effects on global supply chains.

 2. Regulatory Uncertainty

Future US policies under the incoming Trump administration could introduce new restrictions, increasing market volatility.

3. China’s Adaptation

While lagging behind, China’s heavy investment in analog chips and shadow manufacturing networks could bolster its domestic capabilities, challenging global players in the long run.

Investing in the Future of Semiconductors

The semiconductor industry is undergoing profound transformations, driven by innovation, geopolitical shifts, and massive investments. For investors, this presents a rare opportunity to align with companies that are shaping the future of technology. Focus on resilient leaders like Nvidia and TSMC while exploring opportunities in emerging markets and manufacturing equipment suppliers.

The path ahead is not without risks, but by staying informed and diversifying strategically, you can position your portfolio to thrive in this dynamic and essential industry. Subscribe to our newsletter to stay updated on the latest trends and investment opportunities in the semiconductor space!

Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of any companies mentioned.