Intel and AMD Face Revenue Decline as China Embraces Domestic Semiconductors

The semiconductor industry is witnessing significant transformations, influenced by geopolitical tensions and aggressive technological advancements.

by Faruk Imamovic
Intel and AMD Face Revenue Decline as China Embraces Domestic Semiconductors
© Getty Images/Justin Sullivan

The semiconductor industry is witnessing significant transformations, influenced by geopolitical tensions and aggressive technological advancements. Recent developments indicate that major American chipmakers, Intel Corp (INTC) and Advanced Micro Devices, Inc. (AMD), are confronting notable challenges in one of their most crucial markets—China. Amid escalating tensions, China has retaliated against U.S. semiconductor sanctions by directing major telecom operators to phase out foreign processors by 2027. This move aligns with Beijing’s strategic pivot towards self-reliance in semiconductor technology, marking a decisive shift away from dependence on foreign chips, which historically dominated due to their superior quality.

This directive from the Ministry of Industry and Information Technology intensifies the push for domestically produced semiconductors, aiming to expunge foreign core chips from China's telecom infrastructure. The Wall Street Journal highlights this shift, noting that telecom operators have been tasked with replacing non-Chinese semiconductors as part of a broader national strategy. This transition not only showcases China's improving semiconductor capabilities but also poses significant challenges for Intel and AMD, which have long supplied core processors for China’s network equipment.

The stakes are high as the localization policies and American restrictions threaten to undermine the market positions of these established chip giants. Both Intel and AMD have seen a reduction in revenue from China following U.S. sanctions, with China being a major market for their products. This scenario is reshaping the competitive landscape, propelling Chinese firms towards technological parity and challenging established U.S. players' dominance.

Innovations and Market Dynamics

In the midst of these challenges, other players in the semiconductor space are carving out their own paths to dominance, particularly in the burgeoning field of Artificial Intelligence (AI). Nvidia Corporation (NVDA) stands out as a major beneficiary in the current climate, despite also being affected by U.S. export restrictions. Nvidia has adeptly navigated these restrictions by rolling out new GPUs that are exempt from the curbs and planning specific models tailored for the Chinese market. This strategic agility underscores Nvidia's enduring dominance and innovative approach to overcoming regulatory challenges.

AMD© Getty Images/David Becker

Nvidia's prowess is particularly evident in its AI chips like the A100 and H100, crucial for server-based AI applications in data centers. The company’s stock has seen a remarkable surge, outperforming peers with a 242% increase over the last 12 months. Similarly, AMD has also shown resilience, with an 85% climb, while Intel posted an 18% increase.

Moreover, the semiconductor industry is not just about responding to immediate market demands but also about anticipating future needs. Both AMD and Intel are pivoting towards integrating AI capabilities into personal computers, focusing on local model processing to enhance data privacy and improve battery life. This shift aims to meet the growing demand for AI-native applications, although widespread consumer adoption may take time.

The market dynamics are further highlighted by Marvell Technology (MRVL), another significant player that has seen a substantial gain this year. Unlike Nvidia, Marvell specializes in Digital Signal Processing (DSP) and Application Specific Integrated Circuits (ASICs), collaborating with companies like Amazon to develop bespoke chips for unique challenges. This diversification allows Marvell to stay competitive in a market increasingly driven by custom solutions.

Strategic Investment in a Transformative Sector

The semiconductor and AI sectors are not just about technological innovation; they represent significant investment landscapes that are continually evolving. Investors looking to capitalize on the growth of these industries must consider various factors, including market trends, technological advancements, and geopolitical implications.

Choosing the Right Investment Vehicle

For those interested in the semiconductor sector, individual stocks such as Nvidia, AMD, and Intel offer direct exposure but come with the volatility typical of single-stock investments. Nvidia's impressive performance, characterized by a staggering 242% increase over the past year, illustrates the potential high rewards. Similarly, AMD and Intel, though more modest in their gains, provide solid options for those looking to invest in established companies leading the technological charge.

However, for investors seeking to mitigate risk while still tapping into the sector's potential, Exchange-Traded Funds (ETFs) represent a compelling alternative. ETFs like the VanEck Semiconductor ETF and the Global X Robotics & Artificial Intelligence ETF allow investors to diversify their holdings across multiple companies within the AI and semiconductor industries. This diversification reduces the impact of any single company’s performance on an investor's portfolio, offering a more stable investment option while still capitalizing on the sector's overall growth.

The Spear Alpha ETF is another attractive choice for those looking to invest in AI and technology-driven sectors. Managed by Ivana Delevska, the fund has outperformed larger counterparts with a remarkable 61% growth over the past year. Its success demonstrates the potential of actively managed funds in navigating the complexities of the technology market, making it a worthy consideration for investors aiming for high returns.

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