Is a recession already baked into the US chip stocks?

Semiconductor stocks are already under significant pressure amidst escalating China-US trade tensions, but a Wall Street analyst warns these names haven’t seen the worst yet.

According to John Vinh, a senior KeyBanc analyst, chip stocks could tank another 40% from here if the US economy slides into a recession by the end of 2025.

In recent weeks, experts have been concerned that Trump’s new tariffs on rivals and trade partners will lead to an economic slowdown in the coming months.

If these fears do indeed come to fruition, the iShares Semiconductor ETF (SOXX), which has lost more than 25% since late January, could sink further in the second half of this year, as per John Vinh.

Trump tariffs remain a major headwind for chip stocks

Vinh sees an increased probability of a recession this year after the Trump administration slapped unprecedented tariffs on dozens of other nations.

His estimate of a massive further decline in the US semiconductor stocks is based on the “average of the last four cycles of -47% peak-to-trough EPS.”

However, the KeyBanc analyst agreed that SOXX could also prove to be an exceptionally lucrative investment for 2025 if a resolution is reached on the tariffs front.  

Note that the iShares Semiconductor ETF traded at a high of about $260 in July of 2024. A potential return to that level would mean a 50% gain from current levels.

US-China trade tensions stand to hurt chip stocks

President Trump has already exempted chips and a bunch of other electronic devices from steep tariffs.

However, the rising trade tensions between Washington and Beijing remain an additional headwind for the sector.

The US has recently announced new restrictions on exporting advanced chips to China, which Nvidia says will hurt its earnings by up to $5.5 billion in Q1. AMD made a similar announcement last week as well.

Citing tariffs and inventory destocking headwinds in his research note, John Vinh lowered his full-year forecast for integrated circuits revenue (excluding memory) from 9% to 5% only.

“Tariff-related pull-ins and negative end-demand impacts from the current policy could extend the bottoming process into 2H25,” he added.

Two chip stocks that are still worth owning in 2025

Amidst such a backdrop, the KeyBanc analyst recommended sticking to names that are further along in destocking or are more focused on generative artificial intelligence.

Two stocks in particular that he likes are Nvidia and Broadcom.

John Vinh rates both of those AI stocks at “overweight”. He sees upside in NVDA shares to $190 or about 85% from here, while his $275 price target on AVGO signals potential upside of over 90%. 

Both Nvidia and Broadcom currently pay a dividend as well, which makes them all the more attractive to own for semiconductor exposure.

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