For U.S. chip vendors, BofA Securities analysts Vivek Arya and Duksan Jang expect first-quarter results to beat as their original outlook was likely conservative and tariff-related pull-ins created a better demand environment.

However, the second-quarter outlook could be in line as companies could widen the guidance range.

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Regarding tariff impact, Arya and Jang expect U.S. chip companies to follow the example of early reporting companies Taiwan Semiconductor, ASML, Texas Instruments Inc (NASDAQ:TXN), and Lam Research Corp (NASDAQ:LRCX).

The analysts generically express concern on second-half demand headwinds and quantified gross margin headwinds from inflationary supply chain movements (such as Nvidia Corp (NASDAQ: NVDA) and Advanced Micro Devices, Inc (NASDAQ:AMD)) and higher U.S. sourcing.

Overall, semi-industry overhangs could persist pending clarity on new sectoral tariff rates (next several weeks), China retaliation, U.S. reciprocal tariffs, and AI diffusion rules (May 15).

The analysts laid down two potential scenarios, which are modest tariff impact and dire tariff impact. Their modest scenario aligns with limited China and reciprocal tariffs, while the dire scenario implies the implementation of specific sectoral tariffs on semis/electronics (tariff rates not yet announced).

In a modest scenario, tariffs could drive roughly ~4% hit to calendar 2025 sales and ~6% hit to calendar 2026 versus current consensus, with EPS declines mostly ranging between 5%-25% (12%-13% average) inclusive of 150bps gross margin hit.

In a dire scenario, estimates could be further pushed down, with a 9% and 12% sales decline in calendar 2025 and 2026 and EPS declines mostly ranging between 15%-50% (25%-30% average) inclusive of a 500bps gross margin hit.

For revenue impact, the analysts noted companies with AI/cloud/industrial exposures to fare better in a potential tariff-induced demand downturn.

Importantly, even under the above distressed EPS scenario (dire tariffs), Nvidia, Micron Technology, Inc. (NASDAQ:MU), Synopsys, and Marvell Technology, Inc. (NASDAQ:MRVL) have a 30%+ potential upside to historical P/E or PEG multiple at current stock price.

In a modest tariff scenario, the EPS hits of 12%-13% (2-2.5 times sales) are well below the 30%-40% reductions the analysts have seen in prior market downturns. However, the primary concern is PE multiple compression due to enhanced market risks.

The SOX index is currently trading at ~18 times forward PE, below the broader SPX at ~20 times, though above the 12-14 times PE at prior semi-industry downturns. Notably, the SOX index has more than given up the ~20% PE premium it gained during AI-fueled stock gains in calendar 2023 and 2024.

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