The uncertainty that has gripped the market recently has been palpable. Concerns about the on-again, off-again tariffs, a high-profile spat between the White House and the Federal Reserve Bank, and the ongoing trade war with China have raised concerns about the impact on the broader economy and led to historic volatility. However, a double dose of good news overnight sparked a broad-based market rally, which helped drive semiconductor and artificial intelligence (AI) stocks higher.
With that as a backdrop, chipmaker Advanced Micro Devices (AMD 2.20%) jumped 6.6%, semiconductor giant Broadcom (AVGO 4.11%) climbed 5.1%, and foundry Taiwan Semiconductor Manufacturing (TSM +0.42%) rallied 4.5%, as of 1:56 p.m. ET on Wednesday. A check of all the usual suspects -- earnings reports, regulatory filings, and analyst commentary -- revealed no company-specific news that was driving these stocks higher. This suggests that broader macroeconomic and geopolitical factors are at play.
Image source: Getty Images.
It's all about the tariffs
Make no mistake, the primary catalyst that helped drive stocks higher were comments from President Donald Trump that suggested he was making headway on the tariff front, particularly regarding the ongoing trade war with China. In a press conference in the Oval Office, Trump said tariffs on products from China will "come down substantially, but it won't be zero." He went on to say: "145% is very high and it won't be that high. It won't be anywhere near that high."
The comments came less than 24 hours after U.S. Treasury Secretary Scott Bessent made comments at an investor conference that suggested there was progress being made in the trade talks. He said he expected "there will be a de-escalation" in the rhetoric between China and the U.S in the "very near future."
Many have feared that wide-ranging tariffs could raise prices, boost inflation, and potentially spark a recession. Investors welcomed signs that progress is being made.
NASDAQ: AVGO
Key Data Points
Feud with the Fed
There was more good news. It appears the high-profile feud between the Trump administration and Federal Reserve Bank Chair Jerome Powell may be on the mend. Trump has been vocal in his desire for lower interest rates, a move the Central Bank fears will reignite inflation. Last week, markets slumped when Trump said he can fire Powell if he wants to, and that his "termination cannot come fast enough," despite the Fed's historical independence from the executive branch.
When asked if he would resign under pressure from the White House, Powell said the law doesn't allow a president to fire the sitting Fed chair, except under the most egregious circumstances, a position supported by most legal scholars.
Trump's position appeared to soften late yesterday, when he said, "I have no intention of firing [Powell]."
Investors had feared the high-profile spat could escalate into a bruising legal battle, and the U.S. economy would be the ultimate victim of the clash.
NASDAQ: AMD
Key Data Points
Why it matters
Over the past couple of years, rapid advances in AI have sparked a wave of innovation, resulting in state-of-the-art AI models powered by the most advanced semiconductors. Many of the biggest names in technology have benefited from the AI revolution, with this trio of stocks leading the pack:
- AMD is a leading provider of some of the leading-edge chips needed to bring AI to life.
- Broadcom supplies many of the semiconductors and ancillary products used by data centers to power AI.
- Taiwan Semiconductor Manufacturing is the world's largest foundry, providing the most advanced semiconductors, particularly those used for AI.
Big tech companies have announced plans to spend an estimated $315 billion on capital expenditures in 2025, primarily on the data centers and servers needed to augment AI.
However, the threat of widespread tariffs could hamstring the semiconductor industry, significantly increasing the cost of semiconductors and associated products, bringing the AI revolution to a standstill. The prospect of improvements on the tariff front buoyed the markets, sending AI and chip stocks higher.
These three semiconductor stocks have been among the primary beneficiaries of accelerating adoption of AI, supplying the AI and semiconductor know-how that is supporting the buildout of AI. Given the magnitude of the opportunity, Broadcom, AMD, and Taiwan Semiconductor remain attractively priced, selling for 27 times, 21 times, and 17 times forward earnings, respectively.
