Trump’s Tariffs and Their Impact on the Semiconductor Industry: UBS Remains Optimistic Amid Policy Changes

Key Takeaways

UBS downgraded U.S. GDP growth for 2025, leading to a projected 260 basis points impact on semiconductor revenue growth.
Semiconductor revenue is expected to reach USD 7.04 trillion in 2025, a 17% increase, revised down from 19.6%.
Despite tariff-related challenges, UBS remains optimistic about AI-driven companies like NVIDIA and Broadcom, alongside favorable views on Texas Instruments and Lam Research.

Impact of Tariff Policies on the Semiconductor Industry

After the Trump administration’s recent tariff announcements, UBS analyzed the potential effects on the semiconductor sector. The bank quantified the relationship between U.S. GDP fluctuations and semiconductor revenue, calculating a correlation coefficient of -2.2. This suggests that for every 1% change in U.S. GDP, semiconductor revenue would be affected by approximately 2.2%.

As a result, UBS has revised its U.S. GDP growth estimate for 2025 down by about 120 basis points. Consequently, it anticipates semiconductor revenue growth will decelerate by roughly 260 basis points. The revised forecast indicates that semiconductor revenue could total USD 7.04 trillion in 2025, reflecting a year-on-year growth of 17%, down from an earlier estimate of 19.6%.

UBS also considered varying scenarios—from moderate downside risks to extreme pessimism. In a scenario where countries retaliate fully against U.S. tariffs, semiconductor revenue growth could decline by about 10 percentage points, significantly more than in a non-retaliatory scenario.

After observing a 16% decline in the Philadelphia Semiconductor Index (SOX) last week due to market adjustments related to tariffs, UBS assessed market expectations as reflected in current stock prices. Their analysis using the HOLT framework indicated an expected Cash Flow Return on Investment (CFROI) of 8% for 2023, which should rise to 10% by 2024. However, the market suggests a decline to about 9% over the following five years, with asset growth predicted to plunge from 7% to just 2%.

The current SOX level of around 3600 points suggests the annual revenue growth rate could drop from 9.9% by an average of 50 basis points yearly without any improvement in profit margins or asset efficiency. While demand destruction linked to tariffs is a concern, UBS expresses confidence that spending on artificial intelligence (AI) will remain robust. The challenging demand landscape may prompt companies to increase AI adoption to cut costs.

UBS is particularly interested in AI-focused firms like NVIDIA and Broadcom, which leverage their strong pricing power amidst market shifts. They also view Texas Instruments favorably due to its advantages in domestic manufacturing. While maintaining caution towards semiconductor equipment stocks, UBS sees potential in Lam Research, given its attractive valuation after years of underperformance compared to peers.

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