US Tightens Chip Rules for TSMC, Signals Major Changes in the Semiconductor Market
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The US government has directed Taiwan Semiconductor Manufacturing Co (TSMC) to stop shipping advanced chips meant for artificial intelligence (AI) to customers in mainland China. This order, found in a letter from the Department of Commerce, impacts chips that are designed with 7 nanometers or more advanced technology.
This action follows prior restrictions announced in October 2022, which targeted NVIDIA, AMD, and equipment manufacturers, and later expanded into wider regulations.
In a recent note, UBS anticipates that the semiconductor sector will experience increased volatility as more information about these export controls becomes available. Possible tariffs that may be introduced under a second term for President-elect Donald Trump could add to the uncertainty in the market. Nonetheless, UBS holds a positive outlook for quality semiconductor firms involved in the AI sector.
“Without taking any single-stock views, we continue to believe solid fundamentals should provide support for quality semi names with exposure to the AI growth story,” UBS stated.
The firm is confident that once the dust settles on the export control issue, investors will shift their focus back to individual company performances. In both 2022 and 2023, the Philadelphia Semiconductor Index faced significant downturns in October due to similar regulatory concerns, but chip stocks saw recoveries in the months that followed as the effects turned out to be manageable.
“We believe investors will look beyond the headlines and assess the company-specific impact when details become available,” UBS added.
Despite impending fluctuations, UBS emphasizes the strong commitment from major tech companies to invest in AI. This investment is a crucial factor for semiconductor companies involved in this trend. The bank expects total AI-related spending among these tech giants to rise by 50% this year to USD 222 billion, with an additional increase of 20% projected to reach USD 267 billion by 2025.
“The biggest beneficiaries of big tech’s robust AI spending, in our view, are companies exposed to AI semis, especially in areas like graphics processing units (GPUs), custom chips, and high-bandwidth memory,” UBS remarked.
UBS also notes the rapid adoption and monetization of AI, pointing to recent earnings reports from tech firms that reveal strong growth in cloud revenue along with management’s comments on AI’s increasing acceptance and efficiency improvements across various sectors.
“We maintain our positive view on AI and believe the technology will continue to drive growth in the years ahead,” UBS concluded.
The firm suggests that investors with low exposure to AI consider structured strategies to gradually build long-term positions, while those with significant exposure might want to explore strategies focused on capital preservation to better navigate the current market uncertainties.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
