To The Moon

US Commerce Department is ready to start disbursing some $39 billion in subsidies and incentives for companies building new semiconductor manufacturing plants in the U.S., part of the massive $280 billion CHIPS Act signed into law last summer.

President Biden signs the CHIPS and Science Act of 2022 into law on August 9. (REUTERS/Evelyn Hockstein)

1. The current global production pattern in the chip field

Chips Act is a test of the U.S. government’s ability to reverse an overseas exodus of the domestic semiconductor industry, hopes to ensure the U.S. maintains its edge in advanced computing and technology.

Although the U.S. invented the semiconductor, but the country only produces roughly 10% of global supply, fell from it's 37% in 1990.

However, Asian nations control more than 80% of global microchip market share. Taiwan China is the undisputed world leader, accounting for some 63% of the total market, with South Korea at 18% and China about 6%. And, when it comes to the most advanced microchips, Taiwan controls some 90% of the global market.The CHIPS Act is just one of several policy initiatives put in place by the U.S. government aimed at hobbling foreign semiconductor manufacturing, particularly in China. According to Reuters, the U.S., Japan, and the Netherlands recently agreed to comply with export restrictions of chipmaking tools to China.

2. Chips Act Incentive Details & Companies will be benefit

The legislation provides more than $52 billion in grants and other incentives for the semiconductor industry as well as a 25% tax credit for those companies that invest in chip plants in the U.S.

In detail, roughly $39 billion in manufacturing incentives for chip plants known as fabs, as well as material and equipment factories, plus $13.2 billion for research and development and workforce training.

Businesses are now able to apply for through the Commerce Department. The Chips Act has already set off an investment boom in the industry.Top U.S. manufacturers including $Intel(INTC)$ $Micron Technology(MU)$ $Telecom Italia S.P.A.(TI)$ have all unveiled plans to expand their capacities.

• $Micron Technology(MU)$ intends to invest up to $100 billion over the next 20 years to build the largest fabrication facility in Central New York.
• $Intel(INTC)$ has committed over $20 billion to construct two chip manufacturing facilities in Ohio.

Among Asia’s top chip manufacturers, $Taiwan Semiconductor Manufacturing(TSM)$ has a $40 billion project (constructing two semiconductor fabrication plants )under way in Arizona, and $Samsung Electronics Co., Ltd.(SSNLF)$ . is investing $17.3 billion in a fab in Texas.

Skydio, which makes drones designed for military use and supplies units to the U.S. Army and other parts of the Department of Defense,have benefited from these policies.The Skydio, which designs and assembles drones in the U.S.,will rely on suppliers like $NVIDIA Corp(NVDA)$ and $Qualcomm(QCOM)$ for chips. Both of those are directly impacted and benefiting from the CHIPS Act.

$Rivian Automotive, Inc.(RIVN)$could be one of the biggest winners following CHIPS Act. With computer chip fabrication becoming, in the case of Rivian, closer to home, not only will it become easier to buy and receive chips, but they will also be cheaper than ever, thanks to incentivization. This not only addresses Rivian’s supply bottleneck issue but also its profitability challenges.

Besides Rivian, $Tesla Motors(TSLA)$ ,$Ford(F)$ , $General Motors(GM)$ , and numerous other American manufacturers were dramatically affected by the contraction of the chip supply and could benefit considerably from a new and far closer supply.

3. Who will win for Chip Companies?

With their multi-billion planned investments, these large corporations are set to gain the most from the government’s grants. However, it will take several years for these companies to realize the benefits of manufacturing grants.

It’s also worth highlighting that:

• companies that are given incentives must share a part of their profits with the government
• these companies will be required to limit stock buybacks and dividend payments
• use U.S.-made iron and steel to construct manufacturing facilities
• companies will be required to provide affordable child care for workers

Against this backdrop, let’s look at what the Street recommends for these chip makers.$NVIDIA Corp(NVDA)$ ,$Taiwan Semiconductor Manufacturing(TSM)$ ,$Broadcom(AVGO)$ ,$Advanced Micro Devices(AMD)$ , $Qualcomm(QCOM)$ ,$Intel(INTC)$ ,$Micron Technology(MU)$ ,$NXP Semiconductors NV(NXPI)$

Bottom Line

The government’s active role in driving chip production and significant investments by these companies indicates a stable domestic supply of semiconductor chips in the future. Near-term weakness across the industry and increased competitive headwinds suggest that TSM and MU stocks could emerge as stronger players.

💡 Share Your Insights

• Which Chips Act related stock is in your watchlist or holdings? How does the stock YTD performed?
•  Which stock in future you believe will become the bullish winner under Chips Act, why ?

🎁Prizes

• 🐯All valid comment on the following post will receive 5 Tiger Coins.
• 🐯 The First 10 and Last 10 Commentator with qualified comments will receive another 10 Tiger Coins
• 🐯 TOP 5 most popular and high-quality comments will recieve Another 20 Coins .

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⏰ Duration

• 9 March 2023-16 March 2023 (24 pm)

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