Shares of semiconductor heavyweights Taiwan Semiconductor Manufacturing (TSM +0.40%), Advanced Micro Devices (AMD 0.79%), and Monolithic Power Systems (MPWR 0.41%) were rallying today, up 2.7%, 7.4%, and 6%, respectively, as of 2:21 p.m. ET.
The across-the-board gains were likely in response to reports the Trump administration may grant a reprieve from upcoming April 2 tariffs to semiconductors, as well as other "strategic" industrial sectors.
NYSE: TSM
Key Data Points
Trump partially backs down
According to "people familiar with the matter" and reported first by Bloomberg, the Trump administration plans to omit the sector-specific tariffs it had been considering on automobiles, semiconductors, and pharmaceuticals, as part of the upcoming April 2 tariffs. Those sectors were originally included along with 25% tariffs on major trading partners Mexico and Canada.
However, likely in response to conversations with industry CEOs, the April 2 tariffs will now apparently only include "reciprocal" tariffs on certain trading partners that also have existing tariffs on U.S. goods and/or large trade imbalances. The status of the prior sector-specific tariffs and the Canada/Mexico tariffs is still uncertain. As of now, it appears the White House will apply tariffs to the 15% or so of trading partners with particularly high trade imbalances with the U.S., while other countries could be hit with smaller tariffs of an unspecified number.
A reprieve from tariffs would benefit most semiconductor companies, as the vast majority of chips are manufactured in Taiwan or other East Asian countries today. While both the Biden and Trump administrations have taken steps to initiate more investment in chip manufacturing in the U.S., these large chip fabs take a long time to build, and will likely be more expensive than semiconductor manufacturing sites in Asia, especially Taiwan.
Even though TSMC recently committed to spending $100 billion in the U.S., the vast majority of its manufacturing remains in Taiwan, and it was unclear if the announcement would exempt the company from future tariffs. It's also unclear if Taiwan would ever let its most advanced process node be produced in the U.S. first.
Additionally, AMD makes its leading-edge CPUs and data center GPUs at TSMC in Taiwan today, so it would have also been heavily affected by potential tariffs on semiconductors. And Monolithic Power Systems makes its chips at a variety of manufacturing fabs in China, Taiwan, South Korea, and Singapore. While the new 20% tariffs on China should remain, it's possible Monolithic's chips made in those other countries would get a reprieve for now.
Don't pop the champagne just yet
While today offered a nice relief rally for chip stocks, it may be too early to celebrate. First, the scope of the upcoming tariffs on April 2 are still a bit unclear, as the administration appears to be going back and forth with tariffs and exemptions on a number of products and countries. In addition, even if semiconductors are exempted from tariffs on that date, there will still be a lot of extra duties going on several products across a large number of trading partners.
In the short term, this could raise prices to consumers, slow economic activity and investment plans, or both. Should the economy react negatively to the tariffs more broadly, that could impede the growth of semiconductors generally, which tend to be cyclical. Even the red-hot AI sector could slow down a bit, as more and more big AI spenders are beginning to focus on returns on all that AI investment.
Therefore, investors shouldn't read too much into this one day in terms of having a short-term "all clear." Those investing in chip stocks today should maintain a longer-term view of the benefits of AI, electrification, and other long-term industry drivers. It's really hard to know if today's reprieve marks a near-term bottom, or if more volatility might still be ahead.
