U.S. industry is back in the saddle this year, thanks to the passing of the CHIPS and Science Act by the House of Representatives [July 28]. With the bill set to land on President Joe Biden’s desk in the coming days, the country can expect to reinvigorate its role in semiconductor manufacturing — a role that is only becoming more important with the rising dependence on computing technology. Now, investors looking to take advantage of the news are seeking the best chip stocks to buy to capitalize on this government spending.
The last two years have shown just how dependent nearly every consumer device is on chip technology. As supply constraints compound with rising inflation, this dependence is also wreaking havoc on the cost of phones, computers, cars and hundreds more products. The world is quite literally running out of chips, unable to produce enough to meet demand.
However, U.S. lawmakers have taken steps to remedy this pressing issue this week with the CHIPS Act, a $280 billion act meant to vastly bolster U.S. chip production. About $52 billion of the funds will go directly to various chip manufacturers in order to spur greater production in the States. That’s big news, considering the U.S. has taken the backseat in this space; semiconductor manufacturing has been mostly dominated by Taiwan and South Korea.
Which companies are set to best benefit from the passing of this bill? You can expect to see big things from these chip stocks:
Intel (INTC)
Despite being a U.S. semiconductor company, Intel is one of the hardest-hitting companies in the industry. Boasting a market capitalization of more than $145 billion, it’s one of the largest chip makers on Wall Street. Although the company hasn’t impressed this earnings season, it’s about to benefit big-time from the CHIPS Act.
After Intel’s second-quarter earnings call, investors walked away feeling quite frustrated about INTC stock. Most of all, its 22% year-over-year (YOY) revenue decline and $454 million net loss left a sour taste in shareholders’ mouths. Even more expected losses in Q3 only add to this pain.
However, the long-term outlook for INTC stock remains high, especially given the CHIPS Act news. Intel has big plans for expanding production; the company is in the middle of constructing two facilities in Arizona for $20 billion. Intel is also readying a blockbuster $100 billion facility in Ohio — plants that would greatly expand its production capabilities and put the company on par with international rivals.
Given the CHIPS Act’s emphasis on subsidizing plant construction, Intel is expected to disproportionately benefit from the bill. Slap on the company’s 6.6 price-earnings (P/E) ratio — lower than many other semiconductor stocks — and you’ve got one of the best chip stocks to buy.
Taiwan Semiconductor (TSM)
It may seem backward to buy a Taiwanese company’s stock on news of a U.S. chip manufacturing bill. Normally, that would be true. But TSM stock is different. Taiwan Semiconductor is one of the biggest chip manufacturers in the world — and it’s only getting bigger. This is especially true in the United States, where the company is expanding its footprint.
Taiwan Semiconductor has been growing its influence in U.S. policy in recent years. In 2022, the company has spent more than $1.4 million on lobbying. Unsurprisingly, a considerable amount of these efforts are tied to the CHIPS Act as well as the related FABS Act. Taiwan Semiconductor has been vocally supportive of the bill. But that effort isn’t out of pure benevolence; TSM has a vested interest because it can also receive subsidies from the bill.
Back in 2020, Taiwan Semiconductor unveiled plans for a $12 billion Arizona manufacturing plant. Joining its existing plant in Washington, the announcement marks TSM’s further expansion into the U.S. market. The company broke ground on this facility in 2021, although the plant will likely not be operational until 2024. By helping to get the CHIPS act passed during this years-long construction, Taiwan Semiconductor will likely secure government funding.
Texas Instruments (TXN)
Like Intel, Texas Instruments has held its own as one of the largest chip makers despite the lacking U.S. chip market. While Intel relies heavily on supplying the personal computer industry, Texas Instruments produces chips for a wide range of industries, from automotive computing to communications devices.
Unlike Intel, Texas Instruments has also been stunning TXN stock shareholders with recent earnings. At its Q2 meeting, the company reported a whopping $5.2 billion revenue, a 14% YOY increase. CEO Rich Templeton also bragged about the company’s free cash flow of nearly $9 billion. “This reflects the quality of our product portfolio, as well as the efficiency of our manufacturing strategy,” Templeton told shareholders.
With all of that extra juice, Texas Instruments is ramping up manufacturing — something it planned to do with or without the CHIPS Act. Back in November, the company announced plans for a $30 billion manufacturing campus in North Texas. Now that the CHIPS Act is about to pass into law, the subsidies will help keep the good times rolling. This makes TXN stock one of the best chip stocks to buy right now.
–Brenden Rearick
Fed's Stealthy Move Could Crash U.S. Market [sponsor]A new, secretive move being carried out by the Fed that has nothing to do with lowering or raising interest rates... could soon have an enormous impact on your wealth. According to Dan Ferris, the banking expert who once predicted the collapse of Lehman Brothers, "Millions are about to be blindsided." More here.
Source: Investor Place