Markets Rally as Tariff Talks Provide Hope for Investors
Investors and consumers have faced mounting concerns lately. The ongoing tariffs and trade war with China have raised alarms about rising inflation and a potential recession. Yet, positive news on tariffs emerged Monday morning, sparking optimism and a significant market rally.
In this context, AI chipmaker Nvidia (NASDAQ: NVDA) and semiconductor giant Broadcom (NASDAQ: AVGO) each saw their stocks increase by 4.5%. Chipmaker Advanced Micro Devices (NASDAQ: AMD) rose by 5.3%, while chip foundry Taiwan Semiconductor Manufacturing (NYSE: TSM), often called TSMC, surged 6.2% by 12:07 p.m. ET on Monday.
A review of financial reports, regulatory filings, and analyst price targets revealed no significant news attributed to these stock increases. This suggests that investors reacted positively to developments regarding tariffs.
Image source: Getty Images.
Progress in Tariff Negotiations
On Monday, news broke that the Trump administration struck a deal with China to pause reciprocal tariffs for the next 90 days. This is intended as a gesture of goodwill while negotiations for a permanent agreement continue. Consequently, the U.S. reduced tariffs on Chinese goods to 30%, a steep drop from 145%. Meanwhile, China lowered tariffs on U.S. goods to 10%, down from 125%.
This announcement followed a weekend meeting in Geneva, marking the first direct discussions between the two countries since the initial imposition of tariffs in early April.
Economists and retailers have warned that a prolonged trade war could disrupt supply chains and push prices higher. In the U.S., consumer spending is crucial. If spending declines due to fears of an economic downturn, it may create a self-fulfilling cycle.
As retailers began preparing for the holiday season in December, reports indicate a notable drop in imports since early last month. This decline could lead to increased prices and shortages of certain products from China and other regions.
Effects on Semiconductors and AI
The demand for AI technology has surged over the past two years, with advanced semiconductors driving this growth. Major technology firms are investing heavily in the necessary chips and data centers, amounting to hundreds of billions of dollars in expenditures this year.
However, rising tariffs have the potential to hinder AI growth by escalating costs for semiconductors and related products essential for development.
The pressure on semiconductor stocks has intensified, resulting in a notable decline in valuations in recent months. Presently, Broadcom and Nvidia trade at 33 and 28 times forward earnings, while AMD and TSMC offer even lower multiples of 27 and 20, respectively.
With continued growth expected in AI adoption, savvy investors may find attractive buying opportunities in companies at the forefront of the AI industry, now available at discounted prices.
Seizing Investment Opportunities
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Danny Vena has positions in Broadcom and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool also recommends Broadcom. Please review their disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
