The ongoing U.S.-China chip war has added a layer of complexity to the future of semiconductor stocks. Washington’s semiconductor export restrictions, and China’s retaliatory ban on the use of Micron’s (NASDAQ:MU) chips by its key infrastructure operators, imply future difficulties. More semiconductor companies could bear the brunt of sales and margin loss if the technology and trade war escalates further.
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Following the ban on MU, Robert W. Baird analyst Tristan Gerra highlighted in a note dated May 22 that casualties of the ongoing chip war between the U.S. and China have increased with time. Moreover, the analyst expects a negative impact on more companies in the semiconductor sector if tensions rise further.
More Casualties of the Tech and Trade War
The analyst noted that the trade conflict has weighed on Ambarella’s (NASDAQ:AMBA) market share in the surveillance camera market in China. Meanwhile, Qualcomm (NASDAQ:QCOM) could lose market share to MediaTek, a Taiwan-based fabless semiconductor company, in the smartphone market.
It’s worth highlighting that a significant portion of Qualcomm’s business is concentrated in China. Thus, the U.S.-China trade and national security tensions increase the concentration risk for the company. QCOM sees continued intense competition in China and expects the ongoing tensions to negatively impact its business.
Ambarella, like many other companies, highlighted that trade tensions between both countries have been escalating, which has created an uncertain business environment. While export controls do not restrict the company’s current products, it believes that stringent export restrictions could impact its future business in China. Further, the company thinks that retaliation from the Chinese government could take a toll on its financials.
The management of Intel (NASDAQ:INTC), another significant semiconductor manufacturer, has stated that the trade restrictions, which apply to some of its products, have affected customer ordering patterns in China, which has led to reduced sales. Moreover, future restrictions will likely hurt its financial performance, as revenue from billings to China contributed about 27% to its total revenue in 2022.
The U.S. Chip Companies Lobby Against More Restrictions
The top executives from semiconductor companies, including Intel, Qualcomm, and Nvidia (NASDAQ:NVDA), met with Biden administration officials to discuss China trade policy and convince them to refrain from implementing stricter export restrictions. The move comes after the Biden administration indicated it would further strengthen its export controls to China.
China is an important market for all these companies, as they generate a considerable portion of their revenues and margins from the Chinese market. Thus, the passage of any stricter laws on exports will likely hurt their market share, revenues, and overall business.
These semiconductor businesses still deal with geopolitical and security challenges, regardless of whether the Biden administration goes forward with a tighter export policy. Against this backdrop, let’s understand what the Street recommends for these chip stocks.
What’s the Best Semiconductor Stock to Buy Right Now?
TipRanks’ Stock Comparison tool shows that Advanced Micro Devices (NASDAQ:AMD) and Nvidia sport a Strong Buy consensus rating. Moreover, shares of both of these companies also carry a Strong Buy consensus rating from the Top Wall Street analysts. The significant growth opportunity from growing AI (Artificial Intelligence) applications keeps analysts bullish on these stocks.
Investors should note that TipRanks identifies the Top Wall Street analysts per sector, per timeframe, and against different benchmarks. The ranking shows an analyst’s ability to deliver higher returns through recommendations.
Besides for AMD and NVDA, Wall Street analysts are cautiously optimistic about MU, QCOM, and AMBA stocks. As for INTC, which is scheduled to announce Q2 earnings on July 27, analysts maintain a Hold. Analysts expect Intel to post a loss of $0.04 a share in Q2, compared to earnings of $0.29 a share in the prior-year quarter.
The Factory underload charges, increased sample costs, and higher inventory reserves will likely hurt INTC’s margins and profitability in Q2. Further, the risk of market share losses keeps analysts sidelined.
