Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

CHIPS Act Could Be A Shot In The Arm For U.S. Semiconductor Industry

By Frank HolmesStock MarketsAug 15, 2022 02:51PM ET
www.investing.com/analysis/chips-act-could-be-a-shot-in-the-arm-for-us-semiconductor-industry-200628533
CHIPS Act Could Be A Shot In The Arm For U.S. Semiconductor Industry
By Frank Holmes   |  Aug 15, 2022 02:51PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
SOX
+4.46%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
1310
+1.14%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
TSLA
+2.90%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
005930
+1.09%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
SOXX
+4.69%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
AAPL
+2.56%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

The bipartisan Creating Helpful Incentives to Produce Semiconductors for America legislation, or CHIPS Act, was signed into law last week, setting aside $52 billion to boost domestic semiconductor research and production.

We believe government policy is a precursor to change, and if that’s the case, we may soon see a big shift in the U.S.’s global market share of semiconductor chips. These integrated circuits are the hidden brains of nearly everything that fills our lives nowadays, from vehicles to smartphones, TVs, washing machines and even diapers. Without them, nothing would function.

Global demand for chips is growing at an alarming rate and will only accelerate further as more and more devices are designed to be “smart” and connected. According to ASML, the world’s leading supplier to the chip industry, there are an estimated 40 billion connected devices right now, and by 2030, this number is expected to increase to a jaw-dropping 350 billion.

Put another way, the worldwide semiconductor market is forecast to increase 16.3% this year, which would be the second straight year of double-digit growth, says the World Semiconductor Trade Statistics (WSTS). In 2023, growth is expected to be a more moderate 5.1%.

Semiconductor Sales Forecast By Region.
Semiconductor Sales Forecast By Region.

Semiconductor Use In Automobiles

Consider the growth in automobiles chip use alone. In 2021, each new vehicle contained close to 300 different semiconductors, a massive 40% increase from just two years earlier, according to research by Goldman Sachs.

Demand For Automotive Chips.
Demand For Automotive Chips.

This is due in large part to the expansion of electric vehicles (EVs), advanced driver assistance systems (ADAS) and other technologies. A Tesla Model 3, for instance, is estimated to use more than twice the number of chips as an internal combustion-powered vehicle.

CHIPS Act Designed To Address Supply-Chain Vulnerabilities

As you likely know, the pandemic lockdowns of 2020 exposed huge supply-chain vulnerabilities for a number of goods coming into the U.S., including semiconductors. Without fresh chips, most automakers have been forced to cut production. According to Automotive News, the North American market was short as many as 100,000 new vehicles in the week ended Aug. 7, thanks to the ongoing chip shortage.

This has driven up demand (and prices) for used cars and trucks. The Manheim Used Vehicle Value Index shows that, despite a slight decrease from June to July, preowned auto prices in the U.S. were up 12.5% on average in July from the same month last year.

The $52-billion CHIPS Act, signed by President Joe Biden last Tuesday, is designed to address these supply-chain vulnerabilities, incentivize the construction of new semiconductor manufacturing facilities and compete with other countries’ heavily subsidized industries.

To be clear, the U.S. is no slouch in this department. Semiconductors rank as the nation’s fifth largest export, and U.S. companies represent seven of the top 10 global chip-makers by market cap.

Top Chip-Makers By Market Cap.
Top Chip-Makers By Market Cap.

Nevertheless, the U.S. today represents only 12% of global semiconductor manufacturing capacity, despite the technology being invented in the U.S. That’s according to Keith Jackson, president and CEO of the Semiconductor Industry Association (SIA). Jackson rightfully added that chip technology is “strategically important to our economy and national security.”

If you refer back to the first chart in this piece (“Semiconductor Sales Forecast by Region”), it’s clear the momentum has been gaining for overseas manufacturers. That’s particularly true for Korea’s Samsung (KS:005930) and Taiwan’s Styrene Monomer Corp (TW:1310), whose largest customer is none other than Apple (NASDAQ:AAPL). In 2021, the iPhone-maker accounted for over a quarter of TSMC’s total annual revenue of $57 billion.

The CHIPS Act isn’t the only incentive U.S.-based manufacturers are getting. Just two days after the legislation was signed into law, New York committed an additional $10 billion in corporate tax breaks for chip-makers who build or expand semiconductor fabrication plants, or “fabs,” within the state.

Although nothing has been announced yet, it’s possible that other states may roll out similar tax incentives to relocate within their borders.

Chip Stocks Trading Above Key Moving Averages.
Chip Stocks Trading Above Key Moving Averages.

Shares of the top 30 largest U.S. chip-makers, as measured by the PHLX Semiconductor Index, have responded positively in anticipation of the law’s passage. Last week marked the sixth straight week that SOX has recorded a positive gain, and the index is now back to trading above its 50-day moving average. As of Friday, shares were still about 24% below their all-time close high on Dec. 27, so it appears there could be plenty of upside potential.

Although U.S. Global Investors doesn’t necessarily have a semiconductor chip strategy, we acknowledge that—as I mentioned before—every device and sector uses them. That includes our key disciplines, like gold and precious metal mining, airlines, container shipping and even luxury goods (Tesla (NASDAQ:TSLA) and Apple).

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

CHIPS Act Could Be A Shot In The Arm For U.S. Semiconductor Industry
 

Related Articles

Vince Martin
Micron Looks Like A Buy, But Not Yet By Vince Martin - Oct 04, 2022 7

So far, the market has shrugged off last week’s disappointing outlook from Micron The long view makes some sense, as Micron is an intensely cyclical company One key question:...

CHIPS Act Could Be A Shot In The Arm For U.S. Semiconductor Industry

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Notvery Goodathis
Peteymcletey Aug 15, 2022 5:45PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Democrats win twice? enrich themselves by sending jobs overseas. then enrich themselves through tax dollars being spent on US companies
Benjamin USA
Benjamin USA Aug 15, 2022 5:45PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Ok Vladdie. Stick to Russian boards
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email