Current State of Affairs
The ongoing trade disputes and geopolitical tensions have led to a significant escalation in the chip wars between the United States and China. In response to the Biden administration’s ban on equipment from Chinese giants like Huawei and ZTE, Beijing has retaliated by restricting the use of American chips by its telecommunications companies. This move has forced China’s largest telecoms, China Mobile and China Telecom, to turn to local suppliers for their chip needs.
The Fallout for Semiconductor Stocks
Several U.S. semiconductor companies, such as Nvidia, are heavily reliant on Chinese companies for a substantial portion of their revenue. The restrictions imposed by China put the sales growth of these companies at risk. For instance, Nvidia, which sees around 20% of its data center segment sales coming from China, is uncertain about the impact of the ban on its revenue.
The Losers: Advanced Micro Devices (AMD)
One of the semiconductor stocks facing a significant blow due to China’s actions is Advanced Micro Devices (AMD). Despite the buzz around its new line of high-powered AI chips, AMD relies heavily on China as a critical end market. In its fourth-quarter filing, AMD reported sales of over $3.4 billion from China, constituting 15% of its total annual revenue. The company’s dependence on China is expected to worsen, making it a risky investment option.
The Struggles of Intel (INTC)
Another semiconductor giant, Intel, is also facing challenges due to its heavy reliance on China for revenue. With 27% of its revenue coming from China last year, Intel is in a precarious position. The company is the leader in the server CPU market, but the restrictions imposed by China on the use of Intel chips in government agencies and computers will have a significant impact on its sales.
The Winner: Arm Holdings (ARM)
Despite the challenges faced by other semiconductor companies, Arm Holdings stands out as a potential winner in this scenario. With a joint venture, Arm China, the British chipmaker can continue to expand its business in China. Despite facing export controls, Arm Holdings saw a 7.9% increase in sales to China in its fiscal third quarter, highlighting its resilience in navigating through turbulent times.
Arm Holdings’ ability to comply with regulations and its strategic partnerships position it as a promising investment opportunity amidst the chip crackdown by China, making it a semiconductor stock worth considering.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Rich Duprey has written about stocks and investing for the past 20 years and has been featured in various reputable publications.