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The U.S.-China Rivalry Sparks Investment Boom in Semiconductor Technology


The ongoing rivalry between the United States and China in the semiconductor technology sector is causing significant disruptions. However, despite the challenges faced by popular chip stocks like Nvidia, there are several companies that stand to benefit from this situation, according to analysts at Citi.

Driven by concerns over Taiwan’s vulnerability and broader national security considerations, both the United States and Europe are increasing their investments in semiconductor manufacturing. In response, China is countering import limitations on technology by aggressively investing in its own chip foundries.

This landscape has created a massive wave of investment in semiconductor equipment, with an estimated additional spending of $100 billion resulting from the efforts of governments in the United States and Europe alone, as indicated by Citi. Several tech players are well-positioned to capitalize on this trend, including Taiwan Semiconductor Manufacturing (TSM), Samsung Electronics, ASML (ASML), Applied Materials, and GlobalFoundries.

Among the companies operating in the semiconductor equipment space, ASML and Applied Materials are considered top picks by Citi analyst Chris Danely. Each of them holds a dominant position in the industry.

Applied Materials, the largest American manufacturer of semiconductor-manufacturing equipment, is expected to maintain its leadership in materials engineering over the long term. Citi expresses confidence in its ability to do so. The stock has already seen a 55% increase this year and is currently trading at approximately $151. Citi has given Applied Materials a Buy rating and set a target price of $170, based on a price-to-earnings multiple of 17 times its estimated 2025 earnings.

ASML, a Dutch firm, holds a dominant position in the production of essential “lithography” machines used in semiconductor manufacturing. Citi anticipates that it will be a significant beneficiary as European chip firms establish new manufacturing sites.

The U.S.-China rivalry has undoubtedly caused disruptions in the semiconductor technology sector, but it has also created unique opportunities for companies in the industry. With increased investments and strategic positioning, key players like Applied Materials and ASML are well-poised to flourish in this evolving landscape.

Citi Remains Bullish on ASML and TSMC, Cautious on Intel

Citi maintains a Buy rating on ASML shares with a target price of €780. Currently, ASML shares in Amsterdam are trading at around €634, while its American depositary receipts stand at $688.

While geopolitical concerns regarding Taiwan may appear as a potential obstacle for Taiwan Semiconductor Manufacturing (TSMC), Citi remains confident that it will continue to be the leading contract chip maker globally. The bank believes that TSMC’s manufacturing advantage will ensure its dominant position in the industry. Although Samsung and GlobalFoundries could benefit from secondary sourcing outside of Taiwan, TSMC remains Citi’s top pick for investment.

Additionally, Citi has bestowed a Buy rating and a $70 target price upon GlobalFoundries, which last traded at approximately $54.

However, Intel is noticeably absent from Citi’s list of beneficiaries. Despite expanding its foundry business to compete with TSMC and Samsung Electronics, Intel’s prospects are viewed pessimistically by analysts. Citi cites factors such as a relative lack of experience and economy of scale as reasons behind this sentiment. The bank believes that Intel will not succeed in its foundry ambitions due to its significant lag behind TSMC and its inability to prove itself as a competitive foundry. Furthermore, analog companies are expected to experience lower growth due to China’s insourcing policy for semiconductor content.

Danely, the analyst at Citi, holds a Neutral rating on Intel stock with a target price of $34. Currently, Intel stock is trading at around $43.

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