There could be potential semiconductor company investment opportunities related to the CHIPS Act.
-Semiconductor Investments Intro
-Berkshire Bought TSMC
-Chip War Between US & China
-CHIPS Act Goals & Investments
-Semiconductor Fear In Markets
-Investment Decisions From CHIPS
The CHIPS And Science Act went into law in August 2022 where the US government is providing federal subsidies to encourage semiconductor manufacturing in the United States. CHIPS is intended to help America remain at the forefront of semiconductor chip technology.
And even though I’ve known that semiconductor chips are in gadgets we use every day like our phones, cars, refrigerators, and calculators, I hadn’t studied the semiconductor industry much before.
So now I’m trying to learn more to see if any semiconductor companies might be within my circle of competence, and then I might invest in some eventually. I say this knowing there’s currently a semiconductor supply glut and this industry moves in cycles.
There are a couple of reasons why I wanted to learn more about semiconductors, one of which is that my favorite investor, Warren Buffett’s company Berkshire Hathaway invested over $4 billion into Taiwan Semiconductor Manufacturing Company (TSMC or TSM) during Q3 2022. TSM is now Berkshire’s 10th out of 49 equity positions in its almost $300 billion portfolio.
As I mentioned in today’s video, the We Study Markets newsletter inspired me to learn more about semiconductors and is totally free and contains the Investor’s Podcast Network’s full daily commentary and expert insights. Sign up with this link if you’re interested.
In addition to studying TSM, I’m looking into studying other semiconductor companies like Intel, Micron, ASML, Texas Instruments, NVIDIA, AMD, and more.
As you’re probably aware, there’s been rising geopolitical tensions between the US and China over a number of issues like trade, supply chains, and especially semiconductors. So Taiwan finds itself in the middle of a tug of chip war between the US and China. And of course, the US wants to maintain its business relationships with semiconductor powerhouse Taiwan.
It’s in our economic and national security interests to protect American advancements in artificial intelligence and supercomputer chips. We’re also trying to manufacture more in the states so we aren’t as hampered by ongoing supply chain and trade disruptions.
It was reassuring to me to see that Berkshire invested in Taiwan Semi because maybe these cool tech wars won’t escalate into hotter ones between these two powerful countries, one of which is the world leader in semiconductor innovation and the other one that is catching up rapidly.
The way I understand it, there are two main goals of CHIPS: 1) America wants to direct investment toward semiconductor production and innovation in the US, and 2) curb the rise of Chinese chipmakers, especially in AI and supercomputers.
It’s encouraging to know that as of December 2022, there was almost already $200 billion in private investments allocated toward US semiconductor production and over 40 new US semiconductor projects were announced to take place in the next 10 years.
Among some of the semiconductor companies whose names I recognize, I saw that Intel committed $43.5 billion, TSMC $40 billion, Texas Instruments $39 billion, Micron $35 billion, and Samsung $17 billion in US semiconductor investments over the next 10 years.
In the Fall 2022, the US Department of Commerce announced more of its strategies for implementing CHIPS. This included restricting exports of advanced chipmaking equipment to China. This also meant that any American businesses or people had to obtain special licenses if they wanted to export this equipment or knowhow to China.
In addition, Chinese chipmakers were added to an “unverified” list, which suggested doubt about whether American companies should continue doing business with these competing entities. The prospect of trade restrictions likely caused Apple to drop its supplier Yangtze Memory Technologies Corp.
All of this likely caused some fear in the markets as many semiconductor stocks dropped in market price during October and have recovered somewhat since then. We can already see that CHIPS is having a huge impact in the semiconductor world.
The Department of Commerce’s CHIPS strategy document outlined its strategic goals, guiding principles, and key initiatives. I think how well companies live up to these objectives could influence our investment decisions as to whether we might want to invest in semiconductor companies or not.
There’s way more I need to learn about semiconductors before I’m ready to invest in them, but I hope this high level overview was helpful if you’re also interested in semiconductor companies.
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