Investment in China’s $100 Billion Semiconductor War

China’s ambitious plan to invest $100 billion in its semiconductor industry is a move that could reshape the global semiconductor industry landscape and potentially shake up Western chipmakers’ position in the lucrative Chinese market.

A recent report from the European Commission highlighted by Bloomberg raises growing concerns. Potential erosion of market share For the following companies: NXP Semiconductors NV (NXPI), Infineon Technologies AG (IFNNY)and ASML Holding NV (ASML). These companies, which are key players in microcontroller technology essential to automotive, industrial applications and consumer electronics, face fierce competition from fast-growing Chinese rivals.

The European Commission report highlights that China’s strategic maneuvers, including non-tariff barriers and domestic content requirements, could benefit domestic microcontroller manufacturers. These advantages are particularly strong in China’s booming electric vehicle market, which poses challenges for chip suppliers in Europe and Japan.

Moreover, China’s aggressive investment surge comes amid heightened geopolitical tensions, including the US sanctions that have restricted China’s access to high-end chips. Despite these restrictions, China has reportedly found alternative routes to procure US technology, underscoring its commitment to semiconductor independence. As China aggressively invests in semiconductor manufacturing plants and promotes domestic sourcing of key semiconductor components, the ripple effects are being felt around the world.

Investors navigating this changing environment should consider diversifying across sectors and exploring resilient sectors within technology. Despite China’s semiconductor ambitions and geopolitical tensions, Advanced Micro Devices, Inc. (AMD) and Intel Corporation (INTC) It can provide stability and growth potential.

Let’s take a closer look at the basics of the stocks mentioned above.

Stocks to buy:

Advanced Micro Devices, Inc. (AMD)

AMD, a renowned chip giant, provides x86 microprocessors, graphics processing units (GPUs) and innovative solutions for data centers, clients, gaming and embedded. AMD also develops embedded processors, semi-custom system-on-chip (SoC) products and advanced technologies such as field programmable gate arrays (FPGAs) and adaptive SoCs.

at First quarter Ended March 30, 2024. AMD’s net revenue increased 2.2% year-over-year to $5.47 billion. Both the data center and client segments experienced significant growth, each exceeding 80% year-over-year, driven by the introduction of the MI300 AI accelerator and the popularity of Ryzen and EPYC processors.

In addition, the company’s non-GAAP operating income increased 3.2% year-over-year to $1.13 billion. Non-GAAP net income and earnings per share increased 4.4% and 3.3% year-over-year to $1.01 billion and $0.62, respectively.

Street expects AMD’s Q2 (ending June 2024) revenue to reach $5.72 billion, up 6.7% year-over-year. EPS for the reported quarter is expected to reach $0.68, up 17.2% year-over-year. In addition, the company has beaten consensus revenue estimates in each of the last four quarters.

Intel Corporation (INTC)

INTC designs, manufactures and markets a broad range of computing products, including CPUs, GPUs, memory and connectivity solutions, worldwide. 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 strong results in the first quarter of 2024 (ended March 30) driven by robust innovation across its client, edge and data center portfolios. Total Intel Products generated $11.9 billion in revenue, 17% increase over previous year. Client Computing Group (CCG) revenue increased 31% year-over-year.

INTC’s net revenue was $12.72 billion, up 8.6% year over year, and its Data Center and AI (DCAI) segment revenue was $3.04 billion, up 5%. The company also reported non-GAAP operating income of $723 million, compared to an operating loss of $294 million in the same quarter last year. Furthermore, non-GAAP net income and non-GAAP earnings per share were $759 million and $0.18, compared to a net loss of $169 million and $0.04, respectively.

Analysts expect INTC’s Q2 (ending June 2024) revenue to be $13.02 billion, up slightly from the year-ago period. However, the consensus EPS estimate of $0.10 for the same period represents a 19.5% year-over-year decline. Nevertheless, the company has an impressive track record of beating consensus revenue estimates in three of the last four quarters.

Stocks to sell:

NXP Semiconductors NV (NXPI)

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

NXPI’s total revenue for the first quarter ended March 31, 2024 was 8.6% consecutive decline increased to $3.13 billion. The company’s non-GAAP operating income decreased 11.4% to $1.08 billion from the previous quarter. In addition, NXPI’s non-GAAP net income attributable to shareholders decreased 13% and 12.7% to $840 million and $3.24 per common share, respectively, compared to the previous quarter.

Street expects NXPI’s Q2 (ending June 2024) revenue and EPS to decline 5.2% and 6.5% year over year, respectively, to $3.13 billion and $3.21 billion. This downward trajectory is expected to continue through fiscal 2024, with revenue and EPS expected to decline 1.5% and 0.3%, 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 innovative semiconductor solutions in four key sectors: automotive, green industrial power, power and sensor systems, and connected security systems.

IFNNY’s revenues for the second quarter of its fiscal year ended March 31, 2024 were: 11.8% decrease Revenue increased to €36.3 billion ($39.4 billion) from the previous year, while gross profit decreased 26.9% year-over-year to €14.0 billion ($15.2 billion). The company’s operating profit decreased 53.8% year-over-year to €496 million ($538.38 million).

Additionally, adjusted earnings from continuing operations and adjusted EPS for the period attributable to IFNNY shareholders amounted to EUR 551 million (USD 598.08 million) and EUR 0.42, respectively, representing a decrease of 38.8% and 39.1% compared to the same period last year.

For the quarter ending June 2024, IFNNY’s EPS is expected to decline 39.8% year-over-year to $0.45. Revenue for the same quarter is expected to decline 8.2% year-over-year to $4.11 billion. Analysts expect revenue to decline 7.5% and EPS to decline 30.8% in fiscal 2024.

ASML Holding NV (ASML)

Headquartered in Veldhoven, Netherlands, ASML manufactures essential semiconductor equipment for global chipmakers. It focuses on lithography, metrology and inspection systems, including advanced solutions such as extreme ultraviolet and deep ultraviolet lithography. These technologies support semiconductor production across a wide range of technologies.

ASML’s total net sales are First quarter For the quarter ended March 31, 2024, revenues were €5.29 billion (US$5.74 billion), down 21.6% year-over-year. Operating income was €1.39 billion (US$1.51 billion), down 36.9% year-over-year, while net income was €1.22 billion (US$1.33 billion), down 37.4% year-over-year. In addition, earnings per common share of the company were €3.11, down 37.2% year-over-year.

Analysts expect ASML’s Q2 (ending June 2024) revenue and EPS to decline 15.6% and 27.7% year-over-year to $6.53 billion and $3.99, respectively. Similarly, the company’s fiscal 2024 EPS is expected to decline 4.5% year-over-year to $20.67.