US v China tech war: who will be the winners and losers?

The US-China tech war has notched up one level this week after the White House moved to restrict US investment into Chinese technology, specifically the high-level advanced technologies.

The US cited security and military-related concerns but the affected sectors include quantum computing, artificial intelligence and semiconductors, sectors in which commercial stakes are exceptionally high and where first mover advantage will bring phenomenal economic benefits.

The tech war is nothing new. The decision builds on related restrictions introduced by the US in 2022 to stop US firms from selling the very latest and highest level of electronics technology to China. It is also part of a wider rift with China over resource and technology independence that includes the EU (the EU Chips Act), Japan (export control on chip making tools) and Australia.

China has already retaliated with restrictions on exports of germanium and gallium, two metals key in the production of electronics. The West depends on imports of these metals because China produces two-thirds or more of the total global supply.

While this all looks fairly ugly, from an investment perspective the friction opens up interesting opportunities as all of the regions, including China, are now pouring money into chip makers and related companies to boost their own industries.

A good example is a massive EUR 10 billion project in Dresden which will be 50% subsidized by the German government. The foundry is a joint venture between three major European players, Bosch [NYSE:BOSCH], Infineon [ETR:IFX] and NXP Semiconductors NV NASDAQ:NXPI and Taiwanese semiconductor giant TSMC [TPE:2330].

What will happen with shares?

Going back to US tech companies, some companies have handled this changing regulatory landscape better than others.

A good example is US chip making giant Nvidia NASDAQ:NVDA. After the initial set of White House restrictions last year Nvidia said it expected the company to lose $400 million worth of sales to China. However, the chip maker quickly adapted several of its processors to fit the new export criteria (basically selling lower-level technology than before) and continued to sell to China – that is, until it was ordered by US officials to stop China sales altogether.

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Nvidia was a little more skillful at this ducking and diving exercise than some of its peers and despite the restrictions its share price still rose 136% on the year. In contrast, Texas Instruments NASDAQ:TXN fared worse and lost nearly 8% in share price yoy. Sales to China make up 50% of the company’s total sales.

Other major tech firms such as Micron Technology NASDAQ:MU, Qualcomm NASDAQ:QCOM, Intel NASDAQ:INTC and Broadcom NASDAQ:AVGO will also feel the impact in some shape or form.

Broadcom’s revenue from China was $11.64 billion last year, nearly twice that of its revenue from the US and the company’s share price rose 54% over 12 months.

What next in the tech tug-of-war?

This tech tug-of-war is far from over, if anything, it is only heating up. China has always reacted with a counter move to any Western restrictions, and this time it is pondering restrictions on battery materials exports, a move that could have bitter implications for the EV industry.

It would take a bold analyst to forecast how this will turn out because the relevant companies on both sides have exhibited a high level of agility in responding to what are basically political decisions. But it is very clear that chip making, the electronics industry and very likely battery making will face increased volatility for the foreseeable future until this conflict plays out completely.

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