What happened

Semiconductor investors got some good news Wednesday morning, when Bloomberg reported that an expected surge in Chinese support for its domestic semiconductor industry may not be as big a threat as was once supposed.  

As of 11:35 a.m. ET, Intel (INTC 1.28%) is up 4.3%, Qualcomm (QCOM -0.26%) is gaining 4%, and Taiwan Semiconductor Manufacturing (TSM 3.91%) is tacking on 2.6%.

So what

Just a few weeks ago, semiconductor investors got spooked by a December plan by China's government to shower $143 billion in subsidies upon its domestic semiconductor companies -- nearly twice the level of support promised to U.S. semiconductor companies by the Biden administration. But Bloomberg reports today that China's efforts to negate U.S. technology sanctions, by building its own homegrown semiconductor industry, may already be flagging.

Past efforts by China to throw money at this problem "have so far borne little fruit," says Bloomberg. This is despite $45 billion in chip subsidies already spent over the past decade. And with COVID-19 infections now slowing the Chinese economy as it rolls back its zero-COVID policies, the government may not be able to afford the spending on semiconductor subsidies that it initially planned.

Result: The threat of new competition from China, and potential overproduction and a global price war in semiconductor chips, is now fading.

Now what

There's a further silver lining for investors in Intel, Qualcomm, and TSMC from this report, too. Lacking government support, Chinese semiconductor companies may struggle to compete with Western chipmakers on price -- especially if the latter can use government subsidies to lower their costs, while the Chinese companies cannot.

Conversely, if China decides not to engage in a sort of subsidies war with the U.S., there will be less incentive for the governments of other countries with high-tech industries (e.g., Japan, South Korea, and European nations) to announce subsidy programs of their own.

Long story short, the prospects of avoiding a global price war in semiconductor chips just got a bit better today. Granted, semiconductor companies are already dealing with something of a demand-side semiconductors glut, which is hurting revenues and profit margins already. But at least it now looks like China won't make the situation any worse.

Meanwhile, the valuations on these stocks -- just 8.2 times trailing earnings at Intel, 9.6 times earnings at Qualcomm, and even TSMC's 13.4 times P/E ratio -- aren't particularly expensive, and they arguably already price in the risk of slowing growth and falling profit margins. With long-term prospects for earnings growth still looking pretty good (analysts forecast a five-year earnings growth rate of 21% for TSMC and 23% for Qualcomm), I'd say most investors buying chips stocks today are making the right call.