Foreign entities are now required to obtain a license to export any products containing over 0.1% of domestically sourced rare earth elements. This development prompted President Trump to threaten a significant tariff increase on Chinese imports, resulting in a decline in stock prices. However, he moderated his stance on Sunday, stating in a Truth Social post that the situation with China would “be fine.”
Evercore ISI has identified several large-cap stocks in the semiconductor capital equipment sector that could face headwinds due to these new export controls. Analyst Mark Lipacis noted, “We believe that our large-cap SemiCap equipment companies like ASML, AMAT, LRCX, and KLAC utilize permanent magnets containing rare earth metals in various applications within semiconductor capital equipment tools, such as turbopumps that create the vacuum necessary for etching.”
The use cases for these technologies include chemical vapor deposition, atomic layer deposition, and physical vapor deposition. Lipacis emphasized that these processes require ultra-clean, vibration-free vacuum environments, which are critical for achieving atomic-scale precision, particularly in sub-10nm geometries.
The permanent magnets in question incorporate elements such as samarium-cobalt, neodymium-iron-boron, and yttrium, a rare earth metal known for its corrosion resistance. Notably, all three of these elements are currently included on China’s restricted rare-earth list. Lipacis expressed uncertainty regarding the extent to which inventories of these materials have been accumulated or whether alternative sources could be secured. He cautioned that these developments introduce additional risks for semiconductor capital equipment stocks, stating, “We will monitor closely.”
On a more optimistic note, Lipacis pointed out that the restrictions will not take effect until December 1, which is after the scheduled meeting between Trump and Xi on October 31 and November 1. This timeline may provide both parties with sufficient opportunity to reach an amicable resolution.
The four companies highlighted by Evercore saw their stock prices rise by at least 4% during Monday trading and are outperforming the S&P 500 this year. ASML and Applied Materials have experienced gains of 40% and 35% in 2025, respectively. Lam Research has surged by an impressive 90%, while KLA has increased by over 60%.
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