Shares of TSMC (TSM) and other semiconductor makers came under heavy pressure last week, mainly due to reports that the U.S. is considering tougher trade restrictions to limit China’s access to advanced chips.
The Biden administration is reportedly considering tougher measures against companies such as Tokyo Electron and ASML ( ASML ) if they continue to supply advanced semiconductor technology to China.
The resulting geopolitical tensions have stoked fears that the growth of AI-driven tech stocks will be halted, sending shares of chip makers plummeting, with the Philadelphia Semiconductor Index (SOX) falling nearly 10% over the past five sessions.
But analysts at Lynx Equity Strategies believe last week’s sell-off “is likely to see some reversal this week.”
“SOX (vs. SPX) has fallen below credible levels. The fate of the sector will of course be determined in large part by earnings reports due next week,” they added.
Lynx Equity Strategies cited two fundamental reasons for its view. First, TSM has made a strategic move to largely insulate itself from U.S. policy toward Taiwan, suggesting that last week’s sell-off in TSM shares may be reversing. Second, in an election year, it’s too late for the current administration to make any significant changes to U.S. trade policy, suggesting that the sell-off in China-exposed semiconductor and hardware stocks may also be reversing.
“Hence, we believe investor concerns over strict changes in US policy on China exports by US and non-US companies will fade. We would be buyers of semiconductor and semi-cap names,” the analysts said.
As for TSM, the chipmaker’s foundry status can no longer be considered entirely overseas, analysts noted, with pilot wafers already running at the first phase fab of TSM’s Arizona project.
“Of all the initiatives under the CHIPS Act to boost U.S.-based fabs, TSM’s AZ project is the first to actually produce wafers,” the analysts wrote, “which should give TSM a geopolitical negotiating position no matter who is in the White House next year.”
With the AZ fab up and running and producing 5nm wafers, TSM has gained the trust of U.S. government agencies, and Intel’s (NASDAQ:) CEO has emphasized the need to build a new fab in the U.S., with TSM being the first to do so, Lynx Equity Strategies analysts explained.
“In our view, TSM’s AZ fab will likely produce AI wafers once production begins next year. This will increase TSM’s importance to US interests. We would be a buyer of TSM.”
