7 Semiconductor Stocks to Buy for a U.S.-China Chip War

Stocks to buy

Although geopolitical conflicts between major economic powers are generally something to be avoided, for semiconductor stocks trading amid the backdrop of the U.S.-China chip war, the bad news just might be good news. With more than just competitive bragging rights involved, the technology sector has never been more crucial.

As a recent Fortune article pointed out, the $574 billion U.S.-China chip war has already yielded an “extraordinary success” for the Biden administration. Specifically, the president’s stringent controls on the export of advanced semiconductors and associated systems to China carry national security implications. Even better, other partners – including the Dutch and Japanese – have come on board the export controls.

With a unified effort against China, Beijing may think twice about its expansionary ambitions, especially regarding Taiwan. If the economic and military juggernaut backs off from its heated rhetorical stance, that would be great news for all involved but especially for semiconductor stocks.

As well, the lessons from Covid-19 and even Russia’s invasion of Ukraine emphasized the importance of competitiveness and resiliency. Ultimately, this framework could usher in a new era for the below semiconductor stocks to buy.

Lam Research (LRCX)

Lam Research sign and logo at semiconductor company Lam Research Corporation headquarters in Silicon Valley. LRCX Stock

Source: Michael Vi / Shutterstock

An American supplier of wafer-fabrication equipment and related services to the computer chip industry, Lam Research (NASDAQ:LRCX) might not be the sexiest idea among semiconductor stocks to profit off the U.S.-China chip war. However, it could be one of the most important. Most notably, the Biden administration’s focus on bolstering the domestic chip manufacturing space should benefit domestic equipment suppliers like Lam.

Another factor that may shine a positive light on LRCX stock is the tech sector’s replacement and upgrade cycle. As chips become more advanced, with nodes shrinking and perhaps incorporating new materials, a need for equipment upgrades and replacement will likely rise. Cynically, Lam Research would be in a position to benefit from such a trend.

To be fair, LRCX has already gained nearly 59% of its equity value since the January opener. Moving forward, it may be a slow but steady ride. For now, Wall Street analysts peg LRCX as a moderate buy with a $699.86 price target, implying over 6% upside potential.

Micron (MU)

An outside image of a Micron Technology, Inc. headquarters. MU stock.

Source: Charles Knowles / Shutterstock.com

Based in Boise, Idaho, Micron (NASDAQ:MU) is a producer of computer memory and computer data storage, including dynamic random-access memory, flash memory, and USB flash drives. Since the beginning of the year, MU returned nearly 41% of its equity value. Even with this solid performance, MU could potentially rise even further.

While memory products might not sound that exciting to lay observers, MU represents one of the most important semiconductor stocks. Predominantly, memory chips are essential for smartphones and devices along with data centers. Further, as underlying processors become more complex, the demand for high-capacity memory chips will likely only accelerate.

Even more importantly, artificial intelligence and machine learning can’t go anywhere without memory. It’s only by incorporating this special class of semiconductors that AI protocols become more refined. Lastly, analysts peg MU as a consensus moderate buy. This assessment breaks down into 20 buys, seven holds, and one sell. Overall, the average price target comes in at $75.72, implying 7% growth.

KLA (KLAC)

a KLA sign in a garden

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Headquartered in Milpitas, California, KLA (NASDAQ:KLAC) is a capital equipment firm. Per its public profile, it supplies process control and yield management systems for the semiconductor industry and other related nanoelectronics industries. Further, KLA’s products and services are intended for all phases of wafer, reticle, integrated circuit, and packaging production, from research and development to final volume manufacturing.

Fundamentally, KLA is one of the semiconductor stocks poised to benefit from the U.S.-China chip war due to supply chain diversification. Essentially, the company focuses on sophisticated inspections, a service that will probably only rise in demand. And with several countries joining in on the export controls against China, KLA might see an expansion of its total addressable market.

Since the start of the year, KLAC has gained over 28% of its equity value. However, with tensions rising, it may enjoy even greater gains from here on out. Analysts certainly think so, with the experts pegging KLAC a consensus moderate buy. Further, their average price target is $541.05, implying nearly 12% growth potential.

Analog Devices (ADI)

semiconductor stocks Close-up electronic circuit board. technology style concept. representing semiconductor stocks. top semiconductor stocks to buy now

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Hailing from Wilmington, Massachusetts, Analog Devices (NASDAQ:ADI) specializes in data conversion, signal processing, and power management technology. Per its corporate profile, Analog manufactures analog, mixed-signal, and digital signal-processing integrated circuits (ICs) used in electronic equipment. Since the start of the year, ADI gained a bit over 8%, a relatively modest performance.

Nevertheless, it could be one of the top semiconductor stocks to buy in the U.S.-China chip war. Fundamentally, Analog offers a wide-ranging application portfolio. Manufacturing products for several sectors, including automotive, communications, industrial, and healthcare, the tech enterprise could possibly weather economic storms. After all, one of these sectors could be irrelevant but not all.

In addition, ADI benefits from generally positive options flow or big block trades in the derivatives market. On Sept. 13, traders sold (wrote) a high volume of $190 puts that expire two days later, implying a floor in the price action. Notably, analysts peg ADI as a moderate buy with a $200.73 price target, translating to 14% upside.

ASML Holding (ASML)

Closeup of mobile phone screen with ASML logo on computer keyboard

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When the Dutch joined in on the export control, the top idea among semiconductor stocks that came to mind for practically everyone was ASML Holding (NASDAQ:ASML). Based in Veldhoven, Netherlands, ASML is the only company manufacturing the extreme ultraviolet (EUV) lithography machines that help undergird advanced microchips that power data centers, cars, and smartphones, per CNBC.

With ASML’s pivotal role in the U.S.-China chip war, business should be very good for the semiconductor specialist. Over the past one-year period, ASML stock gained just over 29% of equity value. While it’s not the best-performing name among semiconductor stocks, it practically holds a technological monopoly. That’s a plus for the free world. To be fair, ASML’s options flow screener shows big block trades for bought puts that expire on Sept. 15. But once these puts expire, it’s possible that we may see a bounce back from shares.

Analysts remain unperturbed, pegging ASML as a moderate buy with a $200.73 price target, implying nearly 14% upside potential.

Advanced Micro Devices (AMD)

In this photo illustration, the AMD logo is shown on a smartphone screen.

Source: Pamela Marciano / Shutterstock.com

With the meteoric rise of graphics processing units, Nvidia (NASDAQ:NVDA) would make a consensus inclusion for semiconductor stocks to buy. However, after already soaring nearly 220% since the start of the year, it may be time to give it a break. Instead, I’ll take the time to put a spotlight on Advanced Micro Devices (NASDAQ:AMD).

As a rival GPU specialist, Advanced Micro should benefit from the same tailwinds that skyrocketed shares of Nvidia. And to be clear, AMD is no slouch in the chart performance department. Since the January opener, shares swung up more than 68%. It’s not a flukey print either, with AMD gaining 39% in the past 365 days.

Increasingly, advanced tech such as artificial intelligence (AI) and machine learning (ML) consumes greater amounts of processing capacity. Thus, AMD should see robust demand, if only to fill orders that Nvidia couldn’t. Turning to Wall Street, analysts peg AMD as a strong buy with a $140.58 price target, implying almost 31% upside potential.

Taiwan Semiconductor (TSM)

Taiwan Semiconductor, TSMC (TSM) on phone screen stock image.

Source: sdx15 / Shutterstock.com

One of the most compelling semiconductor stocks, Taiwan Semiconductor (NYSE:TSM) also represents an incredibly risky proposition. Of course, I’m not just referring to the context of the U.S.-China chip war. For years, ominous clouds pointed to Beijing giving the green light to invade Taiwan. Without sounding alarmist, such an action would likely trigger World War III.

At first blush, the notion may sound ridiculous. However, TSMC as it’s known is the world’s largest contract chipmaker. It also produces around 90% of the world’s leading-edge semiconductors that are useful for AI and quantum computing applications, per a report from the Council on Foreign Relations. If an authoritarian regime controlled that supply chain exclusively, we would all be in deep trouble.

Still, by imposing export controls now, the U.S. and its partners are sending a strong message before circumstances get hot. And that might cause Beijing to reconsider, which would be good for TSM stock. Finally, analysts peg TSM as a moderate buy with a $125 price target, implying 37% upside potential.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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