Investing Amidst the $100B China Chip War

In a move set to reshape the global semiconductor landscape, China’s ambitious $100 billion investment spree into its semiconductor industry is poised to disrupt Western chipmakers’ foothold in the lucrative Chinese market.

According to a recent report by the European Commission highlighted by Bloomberg, concerns are mounting over the potential erosion of market share for companies like NXP Semiconductors N.V. (NXPI), Infineon Technologies AG (IFNNY), and ASML Holding N.V. (ASML). These firms, pivotal players in microcontroller technology essential for automobiles, industrial applications, and consumer electronics, face intensifying competition from burgeoning Chinese counterparts.

The European Commission’s report underscores that China’s strategic maneuvers, including non-tariff barriers and local content requirements, could favor domestic microcontroller manufacturers. This advantage is particularly potent in China’s burgeoning electric vehicle market, posing challenges for European and Japanese chip suppliers.

Moreover, China’s aggressive investment surge follows heightened geopolitical tensions, including U.S. sanctions limiting Chinese access to high-end chips. Despite these restrictions, China has reportedly found alternative routes to procure U.S. technology, underscoring its determination to achieve semiconductor independence. As China makes aggressive investments in semiconductor fabrication plants and encourages local procurement of key semiconductor components, the ripple effects are felt globally.

Investors navigating this evolving landscape should consider diversifying across sectors and exploring resilient segments within tech. Despite China’s semiconductor ambitions and geopolitical tensions, investing in solid companies like Advanced Micro Devices, Inc. (AMD) and Intel Corporation (INTC) could provide stability and growth potential.

Let’s look at the fundamentals of the abovementioned stocks in detail:

Stocks to Buy:

Advanced Micro Devices, Inc. (AMD)

Prominent chip giant AMD offers x86 microprocessors, graphics processing units (GPUs), and innovative solutions across Data Center, Client, Gaming, and Embedded segments. AMD also develops embedded processors, semi-custom system-on-chip (SoC) products, and advanced technologies like field programmable gate arrays (FPGA) and adaptive SoCs.

In the first quarter that ended March 30, 2024. AMD’s net revenue increased 2.2{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} year-over-year to $5.47 billion. Both its Data Center and Client segments experienced substantial growth, each exceeding 80{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} year-over-year, fueled by the uptake of MI300 AI accelerators and the popularity of Ryzen and EPYC processors.

Moreover, the company’s non-GAAP operating income grew 3.2{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} from the year-ago value to $1.13 billion. Its non-GAAP net income and earnings per share rose 4.4{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} and 3.3{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} from the prior-year quarter to $1.01 billion and $0.62, respectively.

Street expects AMD’s revenue for the second quarter (ended June 2024) to increase 6.7{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} year-over-year to $5.72 billion. Its EPS for the to-be-reported quarter is projected to reach $0.68, registering a 17.2{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} year-over-year growth. Moreover, the company surpassed the consensus revenue estimates in each of the trailing four quarters.

Intel Corporation (INTC)

INTC designs manufactures, and markets a wide range of computing products globally, including CPUs, GPUs, memory, and connectivity solutions. Known for its microprocessors, Intel powers PCs, servers, and emerging technologies across cloud, network, and edge computing platforms. It operates through segments including Client Computing Group, Data Center and AI, Network and Edge, Mobileye, and Intel Foundry Services.

The company delivered robust performance in the first quarter of 2024 (ended March 30), driven by solid innovation across its client, edge, and data center portfolios. Total Intel Products generated $11.90 billion in revenue, resulting in a 17{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} year-over-year increase. Revenue from the Client Computing Group (CCG) rose 31{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} year-over-year.

INTC’s net revenue increased 8.6{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} year-over-year to $12.72 billion, while its Data Center and AI (DCAI) division’s sales rose 5{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} to $3.04 billion. Also, the company reported a non-GAAP operating income of $723 million, compared to an operating loss of $294 million in the prior year’s quarter. Further, its non-GAAP net income and non-GAAP earnings per share came in at $759 million and $0.18 versus a net loss and loss per share of $169 million and $0.04, respectively, in the same quarter last year.

Analysts expect INTC’s revenue for the second quarter (ended June 2024) to increase marginally year-over-year to $13.02 billion. However, the consensus EPS estimate of $0.10 for the same period indicates a 19.5{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} year-over-year decline. Nevertheless, the company has an impressive surprise history, beating the consensus revenue estimates in three of the trailing four quarters.

Stocks to Sell:

NXP Semiconductors N.V. (NXPI)

NXPI, based in Eindhoven, the Netherlands, specializes in a diverse range of semiconductor products. Its portfolio features microcontrollers, communication processors, analog and interface devices, radio frequency power amplifiers, security controllers, and semiconductor-based environmental and inertial sensors.

For the first quarter that ended March 31, 2024, NXPI’s total revenue declined 8.6{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} sequentially to $3.13 billion. The company’s non-GAAP operating income fell 11.4{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} from the last quarter to $1.08 billion. Also, NXPI’s non-GAAP net income attributable to stockholders came in at $840 million and $3.24 per common share, down 13{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} and 12.7{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} from the preceding quarter, respectively.

Street expects NXPI’s revenue and EPS for the second quarter (ended June 2024) to decrease 5.2{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} and 6.5{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} year-over-year to $3.13 billion and $3.21, respectively. This downward trajectory is forecasted to persist throughout fiscal year 2024, with revenue and EPS expected to decrease by 1.5{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} and 0.3{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38}, respectively.

Infineon Technologies AG (IFNNY)

Headquartered in Neubiberg, Germany, IFNNY is a global semiconductor leader specializing in power systems and IoT. The company drives decarbonization and digitalization with its innovative semiconductor solutions across four key segments: Automotive, Green Industrial Power, Power & Sensor Systems, and Connected Secure Systems.

During the fiscal second quarter that ended March 31, 2024, IFNNY’s revenue decreased 11.8{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} year-over-year to €3.63 billion ($3.94 billion), while gross profit fell by 26.9{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} from the year-ago value to €1.40 billion ($1.52 billion). The company’s operating profit stood at €496 million ($538.38 million), down 53.8{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} year-over-year.

In addition, adjusted profit for the period from continuing operations attributable to shareholders of IFNNY and adjusted EPS amounted to €551 million ($598.08 million) and €0.42, respectively, reflecting a 38.8{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} and 39.1{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} decrease from the prior-year quarter.

For the quarter ended June 2024, IFNNY’s EPS is expected to decrease 39.8{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} year-over-year to $0.45. Its revenue for the same quarter is expected to fall 8.2{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} from the prior year to $4.11 billion. Analysts project a further 7.5{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} decline in revenue and a 30.8{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} decrease in EPS for fiscal year 2024.

ASML Holding N.V. (ASML)

Based in Veldhoven, the Netherlands, ASML manufactures essential semiconductor equipment for global chipmakers. It focuses on lithography, metrology, and inspection systems, including advanced solutions like extreme ultraviolet and deep ultraviolet lithography. These technologies support semiconductor production across diverse technological ranges.

ASML’s total net sales for the first quarter that ended March 31, 2024, decreased 21.6{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} year-over-year to €5.29 billion ($5.74 billion). Its income from operations fell 36.9{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} from the year-ago value to €1.39 billion ($1.51 billion), while its net income declined 37.4{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} from the prior year’s quarter to €1.22 billion ($1.33 billion). In addition, the company’s net income per ordinary share stood at €3.11, down 37.2{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} year-over-year.

Analysts expect ASML’s revenue and EPS for the second quarter (ended June 2024) to decline by 15.6{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} and 27.7{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} year-over-year to $6.53 billion and $3.99, respectively. Likewise, the company’s EPS for the fiscal year 2024 is expected to decline 4.5{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} from the previous year to $20.67.