Since the onset of the Covid-19 pandemic, U.S. and China relations have gotten increasingly worse. Though both nations cannot risk going into conventional warfare, another cold war has arguably already started - and the winner will be the nation with the better technology. Most recently, the U.S. executive order action to ban high-tech investments, such as semiconductors and quantum computing, from reaching Chinese companies has further exacerbated tensions.
At the same time, there have been bipartisan efforts in Congress to rejuvenate the manufacturing industry in the U.S., creating a secular tailwind for domestic manufacturers. To help investors capitalize on this geopolitical trend, here's a look at two U.S.-based manufacturers who are poised to benefit from rising competition with China.
Micron Technology
One sector where the U.S. and China compete fiercely in is semiconductors, a key component in everything from gaming consoles to high-profile military weapons. Micron Technology (MU) – an American company that ranks as the fourth largest maker of semiconductors – is poised to benefit from the international rivalry.
Though the U.S. is ahead in semiconductor sales, China is investing heavily in its domestic industries, and is expected to grow at a rapid rate. To compete with China, Biden last year signed the CHIPS and Science Act, which earmarks $53 billion for semiconductor manufacturing and research. Since national security and job creation are bipartisan issues, these industry subsidies will likely continue as long as U.S.-China relations continue to worsen and become more competitive.
For Micron Technology, the widespread adoption of artificial intelligence (AI) acts as another tailwind. Management said in its Q3 earnings report that it saw substantial revenue growth in its AI servers as a result of generative AI – a market that's growing at an impressive 32% CAGR in the next 8 years, according to industry forecasts.
Finally, analysts are extremely bullish on the stock. Micron has only one “sell rating” out of 27 analysts and a mean target price of $75.96, representing 13% upside from current levels.
With seismic geopolitical shifts and mainstream AI adoption serving as tailwinds, Micron Technology is being propelled by two major positive catalysts.
First Solar
Thanks to significant subsidies from the Chinese government, the country has quietly and rapidly become the definitive leader in solar panel technology over the last decade. In 2022, China produced over three-quarters of the world’s solar panels, and 97% of silicon wafers – the key components in solar panels. Unwilling to be reliant on China for its alternative energy needs, the U.S. has been investing heavily in its own domestic rivals.
One notable beneficiary has been First Solar (FSLR), an early entrant in the U.S. solar industry. In 2023 alone, First Solar is expected to receive $710 million in subsidies from the federal government. The influx of cash has greatly benefited its bottom line, as First Solar's operating margins have drastically improved from -11.8% in Q4 2022 to 25.2% in Q2 2023.
Another trend that's benefiting First Solar is the fall in solar panel prices. As one of the leading domestic solar companies, First Solar is able to leverage its scale and existing infrastructure to increase market share when others are struggling. As a result, management is forecasting revenue between $3.4 billion to $3.6 billion in FY 2023, representing year-over-year growth of over 30%. Furthermore, EPS is estimated to range between $7 and $8, marking a significant improvement from a loss of $2.79 per share last year.
Finally, Wall Street analysts are very bullish, with only 1 “strong sell” stacking up against 12 “strong buys.” The mean price target among the 22 analysts covering FSLR is $235.46, representing a 13.8% upside.
Supported by government subsidies and expanding market share, First Solar is primed to accelerate its growth.
Conclusion
Though the broader market is still uncertain, rocky U.S.-China relations will likely continue to be a dominant theme for the long term. As a result, stocks that are supported by the U.S. government and key to competing with China will continue to experience secular tailwinds. Among this group, Micron and First Solar stand out as two high-quality businesses set to benefit from multiple positive catalysts, and both stocks represent attractive opportunities for investors to capitalize on this geopolitical trend.
