5 Semiconductor Stocks to Look After the CHIPS Act Passes

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The CHIPS for America Act, intended to bring the semiconductor industry back to America, got lost in partisan politics. Republican leaders who claim to support him use him to extract concessions on other issues. Anyone interested in semiconductor stocks should pay close attention to these developments.

Shares of companies backing the financing hit the ground and are not recovered. Reports that the current chip shortage is easing have increased opposition. Many are opposed to subsidizing an industry that appears, at first sight, to be very profitable.

While I have many friends who question the necessity of the law, semiconductor manufacturing is dirty business done by highly paid people. Low-wage countries with lax environmental protections captured it decades before the origin of fleas became a national security issue.

If we are to assuage national security concerns or prevent industry from moving to Europe, taxpayers must make an investment that will pay off in jobs, taxes and repairing supply chains.

There is less urgency among voters for the semiconductor industry. The pressure to pass the bill comes entirely from industry, which is delaying construction of new facilities until funding is secured.

If you think the CHIPS law is necessary and likely to pass, now would be a good time to buy the companies that benefit the most.

INTC Intel $37.17
NVDA Nvidia $152.15
TSM Taiwan semiconductor $81.24
MU Micron $58.96
AAPL Apple $145.77

Intel (INTC)

Source: various photographs / Shutterstock.com

Intel (NASDAQ:INTC) isn’t exactly broke right now, but the economics of the industry mean its money would be better spent in Vietnam or Abu Dhabi if the US government doesn’t help.

CEO Pat Gelsinger, a longtime Intel executive who returned from VMWare (NYSE:vmw) last year saw Intel move overseas and wants to bring it back. But he threatened to move production to Europe if he didn’t get money from the government.

Intel is desperate because it needs to make decisions now about where it will produce chips in 2025. By then it hopes to make chips with circuit lines as small as 18 Angstroms, less than two nanometers apart. .

While Moore’s Law is making headlines, Intel is doing the right thing thanks to Moore’s Second Law. That is, as the circuit lines get closer together, the equipment to make them becomes proportionally more expensive. There’s also what I call Moore’s Third Law, the idea that as chips get more complex, so does their environmental footprint.

In the past, Intel offset these costs by setting up factories where labor was cheaper or where environmental regulations were ignored. For Intel, the CHIPS for America Act is necessary to offset these costs. Without it, Gelsinger argues, Intel is either overseas or uncompetitive.

NVIDIA (NVDA)

Nvidia (NVDA) logo and sign on corporate headquarters.  Blurred foreground with green trees

Source: Michael Vi / Shutterstock.com

No company better represents the semiconductor industry’s recent past and its future than Nvidia (NASDAQ:NVDA).

Nvidia manufactures graphics processors. These were once thought of as “helper” chips that offloaded complex graphics calculations from the microprocessor, for things like rendering video games. They are now at the heart of artificial intelligence and metaverse applications, the future of the industry.

Nvidia does not manufacture chips. It designs them, then hires a manufacturing plant or foundry to make them. In recent years it has been Taiwan semiconductor (NYSE:TSM), the first to master the extreme ultraviolet (EUV) lithography technology needed to render designs at 10 nm and below.

Nvidia co-founder and CEO Jensen Huang was also born in Taiwan, in the historic capital of Tainan, six years before Advanced micro-systems (NASDAQ:AMD) CEO Lisa Su was born in the same city.

This raises the issue of the industry. China claims Taiwan as its territory and regularly threatens to take it by force. The semiconductor industry is now entirely dependent on Taiwan for leadership as well as manufacturing. If Taiwan were invaded today, the entire world economy would be threatened.

Taiwan semiconductor (TSM)

image of the TSM solid state office building

Source: various photographs / Shutterstock.com

An hour’s drive from Taipei is Hsinchu Technology Park, the world’s largest manufacturing hub.

This is where Taiwan Semiconductor has most of its manufacturing facilities, or “factories”. It was there that he mastered the EUV process necessary to manufacture today’s most powerful microprocessors.

Taiwan Semi masters this technology. Samsung also. Intel says yes. Chinese semiconductor makers have not. China finds it difficult to manufacture even 14nm chips without imported technology, which the United States is now trying to deny it.

Taiwan Semiconductor is currently building factories in Arizona and promises to build more once the CHIPS for America law is passed. This would protect global industry from threats from China to the home of Taiwan Semiconductor, a possible landing point for Chinese troops during an invasion. If war broke out, analysts from the US Army War College suggested that Taiwanese factories would have to be destroyed. This would take the global economy with it.

Meanwhile, two-thirds of the semiconductor foundry’s global revenue goes to Taiwan.

Micron (MU)

An exterior image of the headquarters of Micron Technology, Inc. (MU)

Source: Charles Knowles/Shutterstock.com

Micron (NASDAQ:MU) does something that the rest of American industry, including Intel, has abandoned.

Micron manufactures memory and storage chips. Two Korean companies dominate the memory market, but Micron still holds a 23% share.

Micron is known for making chips in its hometown of Boise, Idaho, but it’s a global supplier, with factories in Malaysia, Taiwan and even China. Micron plans to invest $150 billion over the next decade. CEO Sanjay Mehrotra says depending on the fate of the deed, more or less of that money will go to the US

Because memory chips are commodities, unlike microprocessors, their price and Micron’s profitability are highly sensitive to supply and demand. This made the stock very volatile for many years. It was trading for just $10 as recently as 2016 and for $97 as recently as January. That’s down 37% on the year as memory prices fell for the first time in years.

Apple (AAPL)

Apple logo on pink and purple background.  Action AAPL.

Source: Republic of Moab / Shutterstock

The biggest beneficiary of the CHIPS for America Act is America’s most valuable company, Apple (NASDAQ:AAPL).

Apple has sought to control its supply chain for years. At the center of this are semiconductors, which he designs based on designs from ARM Holdings. But Apple doesn’t have a chip foundry. Instead, it’s heavily dependent on Samsung and Taiwan Semiconductor.

In other words, as Taiwan Semiconductor expands in the United States, Apple secures its own supply chain. The Apple chips are among those expected to be produced at Taiwan Semiconductor’s new plant in Arizona.

Apple CEO Tim Cook said supply constraints could cost Apple up to $8 billion this quarter. It’s one of the reasons why Apple shares are down 18% so far in 2022. Apple’s new designs are changing the entire landscape of the industry and will allow it to unify its product lines. iPad, iPhone and Mac products.

But without new manufacturing capability in the US, it could all be just vaporware.

As of the date of publication, Dana Blankenhorn held long positions at AAPL, INTC, NVDA and TSM. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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