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U.S. Chip Companies in Trouble
Alright, the semiconductor war has taken a drastic turn. Looking back at 2024, we remember just how tough things got. The Biden administration barred Nvidia, Intel, and Qualcomm from selling their most advanced chips to China, crippling their potential for growth. Take Qualcomm, for example—nearly 50% of its revenue comes from China. Losing access to such a massive market is a serious blow to U.S. chipmakers, which rely on revenue to fuel research and development.
The semiconductor industry is brutal—it demands constant innovation and massive R&D investments. Without strong sales, companies have fewer profits to reinvest, making it harder to stay ahead of competitors. In 2023, Intel and Qualcomm spent $15 billion and $8 billion, respectively, on R&D—about a quarter of their total revenue. Meanwhile, Huawei, China’s leading tech giant, isn’t slowing down. The company poured over $21 billion into R&D, surpassing its Western rivals and reinvesting more than 25% of its revenue back into development.
Now, with U.S. sanctions in place, Huawei is poised to dominate its domestic market, further squeezing out Western companies. And with Trump back in office, things are about to get even tougher for American chipmakers. He’s planning to dismantle Biden’s CHIPS Act, a critical support system for U.S. semiconductor companies.
Trump's stance is clear: "We’re not giving them any money. The CHIPS Act is a horrible, horrible thing. We give hundreds of billions of dollars, and it doesn’t mean a thing. They take our money, and they don’t spend it the way they should. We don’t need to give them money; we just need to protect our businesses and people."
But here’s the catch—the biggest beneficiaries of the CHIPS Act are U.S. companies themselves. Intel alone received nearly $8 billion from the fund. The Act allocates $39 billion in subsidies for chip plants, $14 billion for R&D, and $75 billion in loan guarantees. If this funding disappears, the burden of innovation will fall entirely on private companies—at a time when trade tariffs are making R&D even more expensive.
This is why semiconductor companies worldwide are reconsidering their strategies. Cutting off the Chinese market could spell disaster, as it risks collapsing revenues and leaving U.S. firms trailing behind in the global tech race. Meanwhile, the West scrambles to adjust as the semiconductor battle rages on.
ASML Survival Needs China
China’s AI Boom Benefits ASML
China’s AI revolution is in full swing, and Dutch chip giant ASML is reaping the benefits. Lower costs mean AI can be applied to more industries, increasing the demand for semiconductors—and ASML's chip-making machines. Despite mounting pressure from Western governments, the company simply cannot afford to ignore China, the world's largest consumer of semiconductors.
ASML’s Strategic Expansion in China
To maintain its foothold in the Chinese market, ASML is pushing forward with its plan to build a reuse and repair center in Beijing. This facility will allow the company to service and maintain machines already sold to Chinese firms, ensuring its continued presence in the region. However, this move has not gone unnoticed. The Biden administration previously warned ASML that servicing China could lead to U.S. sanctions. Now, Trump is taking an even harder stance, urging the company to cut off all support to its Chinese customers.
The Risks of U.S. Dependence
But does ASML have to comply? If Trump imposes sanctions, ASML’s production costs could rise dramatically. Relying solely on the U.S. market would also leave the company dangerously dependent on a single customer. Just ask Canada and Mexico how that strategy has played out in past trade disputes. By continuing its China operations, ASML is hedging its bets—exiting the market entirely would only accelerate China's push to develop its own chip-making technology.
ASML China’s Market Share is Shrinking
China was once ASML’s largest market, but by Q4 2024, revenue from the region had plummeted to under €2 billion. By 2025, Chinese sales are expected to drop from nearly 50% of ASML’s total revenue to just 20%. This spells trouble for two key reasons.
Trump’s Potential Leverage Over ASML
First, ASML risks becoming too dependent on U.S. customers. Trump could easily leverage this, potentially demanding the company relocate its manufacturing to the U.S. under threat of heavy tariffs. If that happens, ASML—and the Netherlands—would face a devastating economic blow.
China’s Growing Semiconductor Industry
Second, China is rapidly building its own semiconductor industry. While it may take years to develop a lithography machine that rivals ASML’s EUV systems, China isn’t holding back. The country is aggressively recruiting top talent, offering uncapped salaries and massive research grants to accelerate domestic chip technology. This isn’t just a business strategy—it’s a technological arms race. China cannot afford to lose, and ASML knows it. The moment China successfully develops its own EUV machines, the game changes entirely.
China’s Plan to Dominate the Chip Supply Chain
Beijing’s ultimate goal is to dominate the entire semiconductor supply chain, much like it did with electric vehicles. From chip design to fabrication and lithography, China wants full control. Semiconductor Manufacturing International Corporation (SMIC) is already leading China’s chip production, and now the country is rapidly expanding its capabilities. Once Chinese semiconductor technology catches up, economies of scale will make their chips far cheaper than Western alternatives—creating an almost insurmountable advantage.
The AI Arms Race: U.S. vs. China
Even Elon Musk recognizes the stakes: "We’re in a race to win AI. If they’re going to be killer robots, I’d rather they be American killer robots than Chinese ones. Who controls AI chip fabrication will determine the winner."
China’s AI Workarounds
However, China doesn’t even need cutting-edge chips to stay ahead in AI development. Software workarounds allow Chinese companies to train AI models without the latest Nvidia Blackwell chips. Jack Ma’s Ant Group has already trained AI models using semiconductors from Alibaba and Huawei—at just 20% of the cost of Nvidia’s H800 chips.
China’s Dual Strategy: Chips and AI
China’s strategy is clear: bypass U.S. sanctions while simultaneously building a self-sufficient semiconductor ecosystem. The country is racing to win on two fronts—domestic chip production and AI software innovation. And as the world watches, ASML is caught in the middle of a geopolitical battle that will shape the future of technology.
Nvidia’s DeepSeek Dilemma
The Tech Race: China vs. the U.S.
The ongoing technology race between China and the U.S. is shifting rapidly. While the U.S. still holds the lead in hardware, China is catching up fast—especially in software innovation. This is forcing companies like Nvidia to find new ways to make their chips essential. One of their latest strategies? Partnering with General Motors (GM) to automate vehicles and factories.
Can GM Help Nvidia Stay Ahead?
While automation sounds promising, GM is far from the most innovative car company. Tesla has made greater strides in self-driving technology, and Chinese automakers like BYD are advancing even faster. Factory automation may hold more potential, but even there, China already has a head start. Four years ago, China had 18% more robots per manufacturing worker than the U.S.—and when adjusting for wage differences, China’s robot adoption rate was 12 times higher. Nvidia is playing catch-up in a race where China is already miles ahead.
DeepSeek Changes the Game
China’s development of DeepSeek using lower-end chips has completely disrupted Nvidia’s strategy. Thanks to software breakthroughs, the foundational layer of AI is now being commoditized. Simply training the most powerful foundation models is no longer enough—China has shown it can out-innovate U.S. firms even without access to Nvidia’s best GPUs.
As one expert put it: "Building massive AI foundation models is now a commodity. It costs a fortune and is tough to compete with open-source solutions. Necessity drove DeepSeek’s innovation—since they had fewer GPUs, they had to make them 10 times more efficient. As a result, training and inference costs are now five to ten times lower than OpenAI and its competitors."
This means the U.S. GPU sanctions imposed two years ago haven’t crippled China’s AI progress. In fact, they may have had the opposite effect—forcing China to innovate faster and become more resource-efficient.
Nvidia’s Struggle to Sell More Chips
Despite these challenges, Nvidia is still making the case that AI’s growing complexity will drive demand for more powerful computing infrastructure. CEO Jensen Huang argues that future AI models will require even greater computational power, ensuring continued demand for Nvidia’s chips.
While this may be true, Nvidia faces a serious limitation—being a U.S. company, its sales are restricted by U.S. government policies. The Chinese market, once a major revenue driver, is now largely off-limits. Meanwhile, China is working toward its own chip independence, and once it develops competitive alternatives, its companies will be free to sell worldwide—gaining even more market share at Nvidia’s expense.
The Impact of Trump’s Chips Act Reversal
Trump’s move to dismantle the CHIPS Act could further weaken U.S. semiconductor firms. Without government funding for R&D, American companies will struggle to stay ahead in this highly competitive industry. Meanwhile, China is doing the opposite—the Chinese government recently announced a $55 billion tech budget, a 10% increase from the previous year, with a significant portion likely allocated to chip development.
The Final Frontier in the Tech Race
China understands that the key to AI dominance lies in controlling chip production. Once it masters chip manufacturing, it can drive down costs and accelerate AI model development at an unprecedented scale. If the U.S. can’t keep pace, Nvidia and other American chipmakers may find themselves outmatched in the very industry they helped create.
The Semiconductor War Is About to Intensify
The Race for Semiconductor Supremacy
Whether we like it or not, the future of technology will be powered by semiconductors. The country that can produce high-tech chips at the lowest cost will ultimately dominate the global tech landscape. However, the semiconductor supply chain is fragmented across multiple countries, creating inefficiencies—especially as geopolitical tensions rise.
A Divided Western Supply Chain
Unlike China’s push for self-sufficiency, the Western semiconductor supply chain is spread across different nations. ASML, which manufactures lithography machines, is based in the Netherlands. TSMC, the world’s leading chip manufacturer, operates out of Taiwan. SK Hynix, a major player in memory chips, is located in South Korea. Meanwhile, Nvidia, the U.S. giant responsible for designing AI accelerators, is headquartered in the United States. This lack of a unified ecosystem makes Western semiconductor production vulnerable to trade wars, tariffs, and political instability—issues that could worsen under Trump’s trade policies.
China’s Push for a Self-Sufficient Chip Industry
China is working aggressively to consolidate the entire semiconductor supply chain within its borders. From lithography to fabrication, Beijing is investing heavily to reduce its reliance on foreign technology. Once China achieves full independence in chip manufacturing, it will drastically undercut global prices, disrupting the Western market and reshaping the industry.
The Big Questions Ahead
The stakes in this semiconductor war have never been higher. Will the U.S. attempt to block ASML from servicing Chinese machines? And more importantly—how long before China fully catches up with the U.S. in AI and semiconductor technology? The race is on, and the consequences will define the future of global innovation.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
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