More than 120 companies, including Intel, Nvidia and Texas Instruments, recently signed a letter urging Congress to speed up negotiations to pass a bill that would massively escalate chip manufacturing in the U.S.
List A group of companies, which also includes Amazon AMZN,
and Microsoft MSFT,
design, manufacture or provide critical infrastructure to the semiconductor industry.
It was an encouraging sign from a diverse set of often competitive companies, who agree that the $ 52 billion Chip Act should move forward to free bottlenecks from the supply chain and drive the leadership agenda. technological development of the United States.
Recapitulation of the Chip Act
For those unfamiliar with the Chip Act, the bill was designed to encourage greater investment in domestic semiconductor research, design and production. With only a small portion of semiconductors produced in the United States, and almost all more advanced semiconductors produced abroad, largely in Taiwan, the bill sought to regain a level of parity to create a more resilient supply chain than also address concerns about U.S. national security and continued technological leadership.
The reason for the stagnation of the current bill is politics as always. There is bipartisan support for the measure, but it has languished after Congress attached it to complex legislation that has to do with U.S. competitiveness with China. The Senate passed the bill in June 2021 and the House last February.
Bets are on the rise
Semiconductors have focused on the pandemic, but the industry is still very technical, creating a gap when it comes to communicating the critical importance that the U.S. intensifies its investment in the semiconductor space. While the US has some of the world’s leading semiconductor design companies like Nvidia NVDA,
Qualcomm QCOM,
and AMD AMD,
most do not manufacture their products, but move on to “no fables,” which involves outsourcing manufacturing. In most cases, these companies use Taiwan Semiconductor Manufacturing TSM,
for its most advanced manufacturing needs, and almost all of these chips are produced in Taiwan.
With the closures of Covid, the screaming demand created through a monetary policy and conciliatory stimuli and a lust for high-tech items that sometimes consume dozens if not more chips, we saw that the dependence on the foreign production caused massive delays in everything from cars to GPUs.
The Chip Act encourages U.S.-based companies looking to expand domestic manufacturing. This includes Intel’s INTC,
proposed a megafabrication in Columbus, Ohio, which has been paused due to Senate indecision, a decision I think is prudent at the moment. With more than two years from excavation to completion, this is not something that can be easily rectified: additional delays only extend the risk of more scarcity or other complications.
National security is another important issue that needs to be addressed. With connectivity in almost everything from transportation to weapons, semiconductor safety is a factor to consider when passing the Chip Act. The law calls for greater investment to ensure the safety of semiconductors, as well as to protect critical intellectual property arising from national research and development.
China has made clear its ambition to, at any cost, surpass the US as a technology leader. This is evident just by looking at some of the current tools and project data around semiconductors. It is estimated that China will increase investment in tools by between 5% and 10%, while domestic investment is steady. In addition, China has 40 fabulous projects proposed, while Taiwan has 20 and the US only five. The staggering figures show a massive gap between the US and China with a clear reliance on Taiwan’s continued expansion rather than increased domestic production.
Biggest winners
For investors, it is important to know that the total addressable semiconductor (TAM) market will become a trillion-dollar industry, growing by 6% to 8% over the next eight years. The need for more investment is sustainable.
The immediate winners of the Chip Act passage and the expansion of domestic manufacturing will, of course, be the ones who create factories here in the US Intel is a clear winner, and I would expect Micron Technology MU,
and GlobalFoundries GFS,
benefit as well.
However, fables and semiconductor consumers also benefit. Includes IBM IBM R&D Centers,
Arm, Qualcomm, AMD, Marvell MRVL,
and LSCC Semiconductor Latex,
In addition, ASML ASML,
and Applied Materials AMAT,
it would have a boost as the substrate, materials, and machinery would increase demand.
Finally, there is a strong argument that the broader technology sector would see growth in the medium term, as the economic slowdown causes companies to increase technology spending, which means more semiconductors. Amazon, Microsoft, Dell, Alphabet GOOG,
Salesforce CRM,
Cisco CSCO,
Oracle ORCL,
SAP SAP,
and ServiceNow NOW,
they are among a host of other names that run on great computing power, which has been scarce.
In addition, more incentives to develop and build more nationally will drive investment, especially in some cases like Microsoft and Amazon, which are building their own chips with Arm technology. It’s a growth snowball that will be boosted by the $ 52 billion law.
The biggest winner of the improved capacity will be consumers and citizens of the world. Economic improvement should lead to lower prices. Increased research and development would probably mean more powerful chips, but consuming less energy, to run our cars, computers and appliances. Americans would have more peace of mind with greater security and technological leadership, helping us play a role as leaders in democracy and foreign policy.
As we know, technology and connectivity are the most critical infrastructure battles of the 21st century, and continuing to stop rather than continue with a semiconductor agenda is putting the US and the world at risk, something that should not be tolerated under any circumstances.
Daniel Newman is the lead analyst at Futurum Research, which provides or has provided research, analysis, advice or consulting to Nvidia, Intel, Qualcomm and dozens of other companies. Neither he nor his firm have any capital position in the aforementioned companies. Follow him on Twitter@danielnewmanUV.