US-China relations are at a turning point after decades of pumping China’s economy with tech to become a cheap manufacturing hub. The USG’s stance toward China has become more confrontational since Trump’s presidency, continuing into the Biden administration.
But that tension has been muted given how interlinked the two economies are. On the road to untangling them, President Biden signed the CHIPS and Science Act in August 2022, which stands for Creating Helpful Incentives to Produce Semiconductors.
CHIPS Act Boon to American Tech
Of the ~$280 billion authorized by the bill, $52.7 billion is allocated for semiconductor research and manufacturing. For shareholders of these companies, $39 billion will land in chip manufacturing subsidies on US soil.
To wean off dependency on China, the CHIPS Act will invest $174 billion over the next five years in the high-tech ecosystem and train the new generation of STEM workforce. Through the investment tax credit alone, $24 billion will spark private sector growth until January 2027.
Following bureaucratic vetting, as of April 2024, the CHIPS Program Office (CPO) announced up to $17.6 billion in loans to five semiconductor companies and $16.8 billion in grant rewards. For investors seeking CHIPS exposure, these semiconductor stocks will drive the US tech hardening against China.
Taiwan Semiconductor Manufacturing Company Ltd.
Although not based in the US, Taiwan Semiconductor Manufacturing (NYSE:TSM) has a significant presence in Arizona. In December 2022, the company unveiled plans to invest in the second semiconductor foundry in Phoenix, worth $40 billion. This Monday, the U.S. Department of Commerce allocated up to $6.6 billion to TSMC under the CHIPS Act.
Although Taiwan’s earthquake seemed to cause significant damage to TSMC, its critical ultraviolet lithography facilities remain intact. With established know-how in cutting-edge chip manufacturing, the earthquake is likely to spur even more investments to decentralize TSMC’s operations.
Over the last 30 days, TSM stock broke even at 0.46%, up 42% year-to-date. At its lowest 52-week stock price of $81.21, the present price of $144.81 is up 43%. TSMC’s next earnings call for Q1 2024 is scheduled for April 18th. For the quarter, the company’s guidance is $18 – $18.8 billion revenue vs reported $19.62 billion in Q4 ‘23.
Twelve months ahead, analyst forecasting pulled by Nasdaq puts the average TSM price target at $164.14. The high estimate is $188 vs the low forecast of $133 per share.
GlobalFoundries Inc.
For its site in Malta, NY, GlobalFoundries Inc (NASDAQ:GFS) received $1.375 billion in grants and $1.6 billion in favorable loans to expand operations and build a new fab. The company also received a $125 million grant for its site in Essex Junction, VT. The Malta expansion is expected to triple its chip-making capacity.
Since the December coverage of GlobalFoundries, GFS stock was priced at $52 vs current $51.59. Given its 52-week low price of $48.12, the stock shows stability, which is not necessarily what semiconductor investors seek.
However, the market will likely rebound in the second half of 2024, following the peak of the inventory correction cycle that lingers. This is demonstrated by GlobalFoundries’ Q4 ‘23 net income of $278 million vs $668 million in Q4 ‘22.
Nonetheless, with granted trust from USG and an 11% year-to-date decline, GFS stock is a low-risk long-term semiconductor exposure. Nasdaq’s average price target for GFS shares is $57.88 vs current $51.59. The high estimate is $63, while the low estimate is $48 per share.
In addition to GlobalFoundries (GFS), investors should view Microchip Technology (NASDAQ:MCHP) in this stable, slow-growth category as another beneficiary of CHIPS grants worth $162 million.
Intel
Lingering in the shadow of AMD (NASDAQ:AMD), Intel Corporation (NASDAQ:INTC) stock gained only 17.5% value boost over one year compared to AMD’s 78% returns over the same period. Year-to-date, the long-standing rivals continue this divergence, as AMD shares gained 22% more value while INTC shares lost 20% of value.
Nonetheless, Intel has been the largest recipient of CHIPS grants across its four sites in Hillsboro, Chandler, Rio Rancho and New Albany, totaling to $8.5 billion and $11 billion in loans. Despite solid earnings in Q4 2023 and having beaten revenue forecast at $15.40 billion vs expected $15.15 billion, Intel’s forward guidance displeased investors.
Like GlobalFoundries, Intel expects slower sales from its PC and data center segments. Yet, just as Nvidia (NASDAQ:NVDA) transitioned from a gaming GPU company to a data center company, Intel is transitioning into a global chip supplier for companies like Apple (NASDAQ:AAPL), Meta (NASDAQ:META), and Nvidia. Most recently, Intel unveiled Gaudi 3 chips specifically optimized for AI that could outperform Nvidia’s flagship H100 chips.
In the short run, Intel’s transition is costlier, as demonstrated by the delay of foundry construction in Ohio this February, which is worth $20 billion. But if any company will be the American version of TSMC, it will likely be Intel. In that arena, Intel is already gaining ground with February’s announcement of 14A process technology. These 1.4 nm chips will be ahead of TSMC’s 3 nm node processing.
Considering the scarcity of human capital in this arena and USG’s vote of confidence, investors should take Intel’s word that it will become the world’s second-largest chipmaker by revenue by 2030.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
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