Over a week, the (SOX) is down nearly 5%, covering the world’s top 30 semiconductor companies. This may seem odd, given the ongoing AI race with enormous capital commitments. Nonetheless, President Trump’s call appearance on Tuesday’s Squawk Box stirred the market.
Namely, President Trump said that the admin will be “announcing [tariffs] on semiconductors and chips, which is a separate category, because we want them made in the United States.” The question is, should investors now double down on semiconductor exposure, during the momentary dip?
It’s All About Domestic Intel and “Foreign” TSMC
President Trump’s pre-announcement to boost domestic chip production via tariffs aligns with our long-standing stance that Intel Corporation (NASDAQ:) is a vital national asset that will enjoy protective measures against current financial woes stemming from Foundry commitments.
However, President Trump only referred to a $300 billion chip investment in Arizona “from Taiwan”, which is Taiwan Semiconductor Manufacturing (NYSE:). That would be nearly double TSMC’s previously announced total investment of $165 billion, making for the largest direct foreign investment in U.S. history.
At the same time, Taiwan is de-facto a U.S. military protectorate, so it would make sense that leverage could be pulled for even greater capital inflows. Although not mentioned by Trump in that particular CNBC call, Intel is unrolling its 18A chips, also in Arizona.
The 18nm process node is set to deliver Panther Lake chips on the market, giving Intel a major pivot opportunity. However, TSMC makes the bulk of the world’s chips, including for Nvidia (NASDAQ:) and AMD (NASDAQ:). TSMC’s equivalent to Intel 18A is N2 (2nm) appears to offer subpar performance this time around, according to multiple tech analysts.
“Based on this analysis it is our belief that Intel 18A has the highest performance for a 2nm class process with TSMC in second place and Samsung in third place.” Scotten Jones at SemiWiki in February 2025
When Intel originally announced its strategic IDM 2.0 shift in 2021, the company was targeting 2030 to become the world’s second largest chip foundry, sandwiched between TSMC and Samsung Electronics Co Ltd (KS:). Unfortunately for Intel, a commercial rollout is not only about performance but silicon yield.
Intel’s Silicon Yield Troubles
During silicon wafer manufacturing, when chip dies are printed on a crystalline silicon, the complexity of the process causes bifurcation into functional and non-functional chips. In the former scenario, it is also common for chips to have a varying degree of functionality, with degraded ones tagged with a different label to be sold as less-performant versions.
According to Tuesday’s insider report from Reuters, Intel 18A rollout appears to struggle with silicon yield more than usual. Typically, the yield would have to go above 70% for profits to kick in. Insider source claims Intel’s yield reached 10% by this summer, which would mean Intel would have to sell chips at a loss.
Additionally, in April, Intel and TSMC formed a preliminary agreement to establish a joint venture to operate Intel’s domestic chip fabrication plants. These factors are likely the reason why President Trump emphasized TSMC instead of Intel. After all, the AI race against China has a rather short time frame as Huawei catches up with Nvidia.
Trump’s Mighty Leverage Against Taiwan
Similar to how the U.S. extends its hegemonic reach, sufficiently to entrench Europe to vassal status, the same is the case with Taiwan. Yet, the U.S.-Taiwan relationship is even starker in unidirectionality. Namely, Taiwan relies solely on the U.S. military hardware for China to think twice about reclaiming the neighbouring island.
According to the Council on Foreign Relations, Taiwan ranks 5th as the recipient of U.S. arms sales between 1950 to 2022, at $50 billion. For comparison, Israel ranks 2nd at $53 billion. This has drastically increased since 2022, as the U.S. delegated the EU to handle its proxy war with Russia while re-focusing on Indo-Pacific (China).
It is in this light of military, political, diplomatic and economic reliance that TSMC should be viewed. In May, TSMC dispatched a letter to the U.S. Department of Commerce warning that:
“New import restrictions could jeopardize current U.S. leadership in the competitive technology industry and create uncertainties for many committed semiconductor capital projects in the U.S., including TSMC Arizona’s significant investment plan in Phoenix,”
Namely, that tariffs will raise the costs for end consumers and reduce global demand. President Trump’s casual remark about $300 billion, way over TSMC’s $165 billion commitment, is likely another of his leverage plays.
In short, while Intel still struggles to deliver on its Foundry vision, the U.S. remains firmly in control of where semiconductor capital flows. Investors betting on semiconductors would do well to follow the power dynamics, not just the product roadmaps. And following Palantir’s Q2 earnings report, the case for semiconductor demand is at its strongest.
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