3 Potential Rockets to Ride The Exciting ‘Silicon’ Blastoff!
It started when the COVID-19 pandemic forced people to work from home … go to school from home … do just about everything from home.
People upgraded computers, tricked out home theaters and played more video games.
Businesses improved remote work systems and used more cloud infrastructure.
And the “remote economy” appears here to stay even after the virus licks the dust.
The result?
A massive, global shortage of semiconductor chips.
Carmakers have been especially hard hit.
With cars getting more advanced every new model year, more advanced semiconductor chips are needed for the new computer systems.
But even older systems, like power steering, need chips.
The impact has been clearly seen in top manufacturers.
Ford Motor Company (NYSE: F) says it will be cutting one shift in its Kentucky plant, where its larger F-Series trucks are manufactured. The company is also planning to temporarily shut one of its Ohio plants.
General Motors Co. (NYSE: GM) and Stellantis N.V. (NYSE: STLA) (formerly Fiat Chrysler) are planning to only partially assemble some vehicles … as they wait for more microchips to become available.
Japanese firms Honda Motor Co. (NYSE: HMC) and Nissan Motor Co., Ltd. (OTCPK: NSANF) have cut their sales targets by 100,000 and 150,000 vehicles, respectively.
And it isn’t just autos. The microchip shortage has left a whole host of industries struggling … because semiconductors basically power the modern world.
As Kif Leswing of CNBC Business News puts it, “If software is eating the world, then the chips are the teeth!”
They’re in almost every electronic device … and the factories that make them.
They’re even being put inside washing machines and refrigerators as the Internet of Things (IoT) takes off …
Not to mention all the chips needed by today’s military technology … advanced medical equipment … and the power grid.
Then we have the nascent 5G telephone networks … and all the smartphones that will need 5G chips.
Global semiconductor sales were $412.3 billion in 2019. In 2020, they were $439 billion … an increase of 6.5%.
And demand will only increase, even after supply chain issues are resolved … which may not happen until the fourth quarter of this year.
The Semiconductor Industry Association (SIA) predicts microchip sales will jump a whopping 8.4% in 2021 on a year-over-year basis.
China, meanwhile, is far and away the world’s largest purchaser of semiconductors, buying approximately $160 billion worth as far back as 2016.
Given China’s manufacturing prowess, why can’t it simply make its own microchips?
Because they’re some of the most complex products on earth. And the R&D needed to make advancements in chip design can take decades.
Which means China’s telecom sector will remain hugely reliant on U.S. chips for years to come.
The VanEck Vectors Semiconductor ETF (Nasdaq: SMH), which seeks to replicate the price and yield of the Market Vectors U.S. Listed Semiconductor 25 Index, is an easy way to gain exposure to the chip industry.
Depending on your personal risk tolerance, you could also play the trend with individual stocks.
Here are a couple you could target:
1. NVIDIA Corporation (Nasdaq: NVDA) is the global leader in visual computing technologies and inventor of the graphic processing unit (GPU). The company’s focus has evolved from PC graphics to artificial intelligence-based solutions that support high-performance computing, gaming and virtual reality platforms.
Expected earnings growth for the current year is a solid 33.7%.
Shares recently traded near $559.50.
2. Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM) is the world’s largest contract producer of semiconductors and is riding long-term trends like the introduction of next-generation telecommunications and high-performance computing. In fact, it makes the next-gen 5 nm processor chips for major brands like Apple Inc. (Nasdaq: AAPL) and QUALCOMM Inc. (Nasdaq: QCOM).
The company looks to invest $100 billion over the next three years in expanding its manufacturing capacity and in support of research and development. It already operates a semiconductor wafer fabrication facility in Camas, Washington, and design centers in San Jose, California and Austin, Texas.
And a second U.S. manufacturing site in North Phoenix, Arizona is on the table as concern grows over American reliance on Asian sources for high-tech components.
Surging demand pushed the company’s revenue 18% higher over January and February from a year earlier. Shares are currently trading near $124.45.
These cutting-edge stocks could skyrocket from the exponential increase in demand for “stay-at-home” technologies.
In fact, this could be one of the most exciting buying opportunities of the decade, especially for those who consider buying early.
All the best,
Sean
