Free Trial

Chip Stocks: Bargain Buys or Looming Bust?

Nvidia GPU chip close up. Graphic card of computer circuit board macro photo. Cryptocurrency mining boom using videocard

Key Points

  • Geopolitical tensions, particularly those surrounding China and Taiwan, cast a shadow of uncertainty over the semiconductor industry's future.
  • Leading chipmakers face distinct challenges and opportunities navigating trade wars, technological advancements, and economic headwinds.
  • While presenting risks, the semiconductor market, driven by continuous innovation and increasing demand for advanced computing power, still holds long-term growth potential for savvy investors.
  • 5 stocks we like better than Taiwan Semiconductor Manufacturing

The semiconductor industry is the cornerstone of the global economy, underpinning the technology sector with products ranging from smartphones and computers to automobiles and advanced artificial intelligence applications. This sector witnessed a significant surge in stock prices in recent years, fueled by the increasing demand for semiconductors and a global chip shortage. However, recent months have seen a noticeable decline in chip stock prices, prompting investors to question whether this dip presents a buying opportunity or a warning sign of more challenging times ahead.

Geopolitical Headwinds and Trade Uncertainty

VanEck Semiconductor ETF Today

VanEck Semiconductor ETF stock logo
SMHSMH 90-day performance
VanEck Semiconductor ETF
$243.46
+5.55 (+2.33%)
(As of 08/30/2024 ET)
52-Week Range
$136.10
$283.07
Dividend Yield
0.43%
Assets Under Management
$22.51 billion

The semiconductor industry operates within a complex geopolitical landscape, and recent events have introduced significant uncertainties. The ongoing trade tensions between the United States and China and the potential for stricter export restrictions on semiconductor technology have cast a shadow over the sector's future. 

The Biden Administration's policies, particularly regarding China's access to advanced chips, have raised concerns about potential disruptions to global supply chains. These concerns are further compounded by former President Trump's pronouncements regarding Taiwan and the suggestion that the nation should bear a greater financial burden for its defense by the U.S. 

Given Taiwan's role as a semiconductor powerhouse and home to Taiwan Semiconductor Manufacturing Corporation NYSE: TSM (TSMC), the world's largest contract chipmaker, any disruption to its operations could send shockwaves throughout the industry. The potential ramifications of these geopolitical tensions are particularly pronounced for companies like ASML Holding NASDAQ: ASML, the sole supplier of extreme ultraviolet (EUV) lithography machines essential for manufacturing the most advanced semiconductors.


Company Performance and Market Dynamics

While geopolitical factors loom large, individual company performance and market dynamics also play a crucial role in shaping investor sentiment. Taiwan Semiconductor Manufacturing, with its recent stock price reflecting an over 7% decline, illustrates this complex interplay of forces. Boasting a market capitalization of around $900 billion and a price-to-earnings (P/E) ratio of 33.17, TSMC remains a dominant force in the industry. However, its dependence on the Chinese market, accounting for a significant portion of its revenue, exposes the company to potential risks should trade restrictions tighten. 

Similarly, NVIDIA NASDAQ: NVDA, a leading manufacturer of graphics processing units (GPUs) vital for AI development and data centers, faces its own set of challenges. Despite a market capitalization of $2.9 trillion and a P/E ratio of 69.29, NVIDIA's stock price represents over a 6% decline. While the company benefits from the surging demand for AI technology, the ongoing chip shortage and potential economic slowdown pose potential headwinds.

In contrast, Intel NASDAQ: INTC, a major player in the CPU market, has experienced a modest stock price increase of around 2%. With a market capitalization of $149 billion and a P/E ratio of 36.48, Intel is strategically positioning itself to capitalize on the U.S. Chips Act, aiming to revitalize domestic semiconductor manufacturing and reduce reliance on foreign suppliers. The company's efforts to expand its foundry business, directly competing with TSMC and Samsung OTCMKTS: SSNLF, represent a significant strategic shift with the potential to reshape the industry landscape.

ASML Holding NASDAQ: ASML is trading down over 11%. With a market capitalization of $372 billion, it holds a unique and critical position within the semiconductor ecosystem. As the sole provider of EUV lithography machines, ASML's technology is indispensable for producing the most advanced chips. However, the company's reliance on the Chinese market, accounting for a substantial portion of its revenue, makes it vulnerable to the escalating trade war and potential export restrictions.

Qualcomm NASDAQ: QCOM, a leading supplier of mobile processors, faces similar challenges. Its stock price is down around 8%, and its market capitalization is $216.41 billion. Qualcomm's significant exposure to the Chinese market, a major consumer of its products, raises concerns about the impact of ongoing trade disputes. 

Likewise, Micron Technology NASDAQ: MU, a major manufacturer of memory chips, finds itself navigating the same turbulent waters. Micron Technology stock is down around 7%, and its market capitalization is $133 billion. Micron's reliance on the Chinese market for a substantial portion of its revenue amplifies the potential consequences of escalating trade tensions.

Macroeconomic Factors and Government Intervention

Beyond the immediate impact of geopolitical events and company-specific factors, the semiconductor industry remains sensitive to broader macroeconomic trends. Interest rate fluctuations, inflationary pressures, and global economic growth all shape demand and investor sentiment. The current global economic slowdown and its potential to dampen demand for semiconductors present a significant challenge for the industry. 

In response to these challenges, governments worldwide increasingly intervene in the semiconductor market, recognizing the sector's strategic importance. The U.S. Chips Act, for example, aims to bolster domestic semiconductor manufacturing and reduce reliance on foreign suppliers. These government initiatives can reshape the industry landscape, influencing investment decisions and mitigating risks associated with geopolitical tensions and economic uncertainty.

The recent decline in chip stock prices presents potential risks and rewards for investors. Geopolitical tensions, trade uncertainties, and macroeconomic headwinds contribute to market volatility. However, the semiconductor industry remains strategically important, driven by relentless technological innovation and increasing demand for advanced computing power. Investors must carefully assess the interplay of these factors and conduct thorough due diligence before making investment decisions. While presenting challenges, the chip market continues to offer long-term growth potential for those willing to navigate its complexities.

Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?

Before you consider Taiwan Semiconductor Manufacturing, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Taiwan Semiconductor Manufacturing wasn't on the list.

While Taiwan Semiconductor Manufacturing currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

7 AI Stocks to Invest In: An Introduction to AI Investing For Self-Directed Investors Cover

As the AI market heats up, investors who have a vision for artificial intelligence have the potential to see real returns. Learn about the industry as a whole as well as seven companies that are getting work done with the power of AI.

Get This Free Report
Jeffrey Neal Johnson
About The Author

Jeffrey Neal Johnson

Contributing Author

Retail and Technology Stocks

Like this article? Share it with a colleague.

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Taiwan Semiconductor Manufacturing (TSM)
4.4513 of 5 stars
4.45 / 5 stars
$171.73+1.5%1.13%32.71Moderate Buy$200.00
ASML (ASML)
3.8402 of 5 stars
3.84 / 5 stars
$903.87+1.8%0.62%46.16Buy$1,147.80
NVIDIA (NVDA)
4.8811 of 5 stars
4.88 / 5 stars
$119.37+1.5%0.03%69.81Moderate Buy$142.10
Intel (INTC)
4.9878 of 5 stars
4.99 / 5 stars
$22.04+9.5%2.27%22.96Reduce$32.04
Samsung Electronics (SSNLF)
0 of 5 stars
0.00 / 5 stars
$40.60flatN/A15.15HoldN/A
ASML (ASML)
3.8402 of 5 stars
3.84 / 5 stars
$903.87+1.8%0.62%46.16Buy$1,147.80
QUALCOMM (QCOM)
4.9593 of 5 stars
4.96 / 5 stars
$175.30+3.4%1.94%23.56Moderate Buy$210.63
Micron Technology (MU)
4.7989 of 5 stars
4.80 / 5 stars
$96.24+0.7%0.48%-67.77Moderate Buy$157.12
Compare These Stocks  Add These Stocks to My Watchlist 


Featured Articles and Offers

Recent Videos

Palantir’s Growth Surge: Why This Stock Is A Top Buy
Nvidia’s Stellar Earnings: Can It Keep Up the Pace?
Tech Expert Weighs In: Why NVIDIA’s Stock Dropped After Earnings

Stock Lists

All Stock Lists

Investing Tools

Calendars and Tools

Search Headlines