Proprietary Data Insights
Financial Pros Semiconductor Stock Searches This Month
What Makes Nvidia Unique
If you built a computer in the ‘90s, you knew the name Nvidia.
If you were a PC gamer, you knew the name Nvidia.
Everyone else had no idea who they were until the middle part of the last decade.
Nvidia’s resurgence came thanks to deep learning, a subset of machine learning.
Graphics Processing Units (GPU) allow machines to perform multiple computations in parallel.
In many cases, machine learning is nothing more than a smart way to find a solution by testing a bunch of different inputs.
Nvidia was the best in this field and still is.
To give you an idea of how much machine learning contributed to the company’s meteoric rise, you could pick up a share of NVDA in 2016 for less than $10.
Today it trades at $250 and was recently shy of $350. Other companies have stepped up their own GPU game, but don’t hold a candle to Nvidia.
What could derail this train? Quantum computing…
Semiconductor Shortage Needs More Than New Plants
Semiconductor shortages are expected to weigh on earnings for the next year. After that, we still have a problem.
Intel (INTC) announced $20 billion plans to build two new semiconductor plants in Ohio by 2025, eventually investing in as many as eight chip factories in the state.
These fabrication factories etch microscopic transistors into silicon wafers that are about one foot in diameter.
The Unsolved Backlog
That only addresses one part of the supply chain.
You see, those wafers are then sent to testing and packaging plants where machines probe each transistor to ensure they work properly. Once the test is passed, the machine punches out a wafer that’s packaged and sent out.
And guess where most of these testing and packaging plants are?
You guessed it, Southeast Asia.
Just 3% of global chip packing occurs in the U.S., mainly California and Texas.
The good news is that these facilities aren’t in China. In fact, Intel announced plans to build a $7 billion testing and packaging facility in Malaysia.
So the chips are built in the U.S., then sent overseas to be tested, then sent back to the U.S.
Sounds like a lot of port congestion in our future.
Lawmakers on both sides are working to revive a stalled bill that would create $52 billion in subsidies for semiconductor factories in the U.S.
The text from the CHIPS Act allows the government to subsidize any machinery or equipment designed and used to manufacture or process semiconductors.
Yet, all the factories semiconductor companies said they would build in the U.S. should the bill be passed are all fabrication plants, not testing and packaging.
The Bottom Line: We need a combination of government incentives specific to testing and packaging facilities as well as process improvements to make labor more efficient and competitive.
In the meantime, companies like Taiwan Semiconductors (TSM) and Nvidia (NVDA) will continue to maintain pricing power and pad their margins.
Want to get content like this directly to your inbox? Then we urge you to sign up for our newsletter here