G20 truce does not guarantee long-term growth prospects for chipmakers

Semiconductor stocks had a roll earlier this week after President Donald Trump and Chinese counterpart Xi Jinping managed to come close to a common ground at the G20 summit in Japan. Both the leaders promised to resume the trade talks, though the tariffs were not lifted.

The US also temporarily removed the blacklisting on Chinese telecommunication equipment company Huawei. Semiconductor investors took these favorable outcomes a bit too positively and sent most semiconductor stocks soaring.

The iShares Semiconductor Index (NASDAQ: SOXX) gained 4.5% on Monday, led by Advanced Micro Devices (NASDAQ: AMD), NXP Semiconductors (NASDAQ: NXPI) and Qualcomm (NASDAQ: QCOM).

However, over the next few days, the stocks pared most of the gains as investors realized a temporary truce does not guarantee either an end to the trade war or a continued growth environment to chipmakers.

There is also a lot of uncertainty relating to the said lifting of the ban, as Reuters reported that the Commerce Department continues to treat Huawei as a blacklisted company. So can US chipmakers supply components to the Chinese firm? Can’t say for sure.

READ: Understanding Advanced Micro Devices (AMD) stock

Separately, irrespective of what happens to the trade war, a slowing Chinese economy doesn’t bode well for semiconductor makers back home. China’s manufacturing segment is going through one of its slowest phases, and decreased demand would certainly hurt US chipmakers with Chinese exposure.  

As we are so close to another earnings season, it would make sense waiting for the quarterly results to get a clearer picture of the industry’s trajectory. Intel (NASDAQ: INTC) will kick off the semiconductor earnings Thursday, July 25.

iShares Semiconductor Index has gained 26.5% so far this year, outperforming the S&P 500 index, which has gained 18.4% during the same period.

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