The technology sector is preparing for increased volatility due to recent chip export controls imposed by the United States.
UBS strategists have warned that these measures, specifically targeting advanced chips used in artificial intelligence (AI) applications, could have a significant impact on the market.
The US has instructed Taiwan Semiconductor Manufacturing Company (TSMC) to stop supplying these advanced chips to clients in mainland China starting from November 11. This directive affects chips with designs of 7 nanometers or more advanced, leading to a noticeable drop in TSMC's US-listed shares.
This latest round of restrictions follows similar measures introduced in October 2022, which aimed to limit the export of advanced AI chips to China. Market analysts anticipate further chip export controls in the fourth quarter, particularly with the potential for tariffs under a second term for Donald Trump.
UBS strategists have cautioned that as more details about these export controls emerge, volatility in the semiconductor sector is likely to increase. The semiconductor sector has historically experienced significant fluctuations in response to export control concerns, but UBS remains optimistic about the long-term prospects of high-quality semiconductor companies.
Major tech firms' commitment to investing in AI is expected to drive growth in the semiconductor sector, with projections indicating a significant increase in AI-related spending. Companies involved in AI semiconductors, particularly in sectors such as graphics processing units (GPUs), custom chips, and high-bandwidth memory (HBM), are expected to benefit from this elevated AI spending.
UBS advises investors to consider strategies that effectively manage their exposure to the semiconductor sector, depending on their level of investment in AI. As the semiconductor landscape evolves in response to regulatory changes and market demands, the ability to adapt investment strategies will be crucial for navigating this sector.