Renewable Energy Check-In: Semiconductor Shortage and Investment

The global semiconductor shortfall is far from over, making companies expand investment in production capacity. While there were chances that the semiconductor shortfall in the automobile industry was reducing earlier this summer, with major foundry players stating that auto chip manufacturing was set to grow, recent reports from automakers aren't sounding as hopeful.

Semiconductors are used in a wide variety of applications, from automobiles to gadgets to cell phones. With growing demands for tech-related products and the growing popularity of electric vehicles (EVs), semiconductors experienced a remarkable demand over the past year, resulting in a shortfall as production facilities stayed closed for an extended period during the early months of the COVID-19 pandemic.

While automakers continue to carry the burden of the shortage, with automakers such as Toyota Motors and Ford reducing production, Apple, the consumer technology big beast known for its efficient supply chain planning, is reportedly experiencing chip shortages for product lines such as its MacBook laptops, Beats earphones, and Apple Watches.

Although the true scope of the semiconductor supply-demand inequity is difficult to determine, given the mixed and mysterious nature of the semiconductor industry, as well as the likely stockpiling of chips by some clients, the overall opinion is that the shortage will last at least until mid-2022.

Even once the supply issue is fixed, the longer-term prospects for enterprises in the foundry and semiconductor equipment space are set to brighten.

Rising digitalization following Covid-19, the wireless market's 5G upgrade cycle, and the need for more powerful processors for applications such as AI and machine learning, as well as cloud computing, are all major drivers of semiconductor demand growth. This should be good news for equipment manufacturers, who may see increased demand for cutting-edge chip production devices.

With auto chip shortages easing, are semiconductor equipment stocks still a grab?

Several indicators indicate structurally rising semiconductor demand, which should encourage investments in chip production equipment. Higher digitalization following Covid-19, the wireless market's 5G upgrade cycle, and the need for more powerful processors for applications including such Machine learning and artificial intelligence, as well as cloud computing, are all major drivers of semiconductor demand growth. Furthermore, the demand for increased re-shoring of semiconductor production from abroad to the United States could drive sales.

Although much of the focus has been centered on the automotive industry, the shortage is still having an impact on businesses ranging from medical devices to home appliances and consumer electronics. There appears to be no simple fix for the current deficit, and significant investments in the global semiconductor supply chain will be expected in the near future. Investors can get exposure to this trend by following this information on Stocks That Benefit from Semiconductor Shortage, which covers companies that manufacture chip making machines and tools, as well as semiconductor companies with their fab capacity.

The U.S. government takes action

As a result of the current supply crisis, as well as factors such as Covid-19 and the trade war with China, the market for semiconductor fabrication equipment is expected to rise. To put this in context, the United States' share of semiconductor production has fallen to barely 12 percent, down from around 37 percent in 1990, and legislators are working to reverse this trend.

To encourage semiconductor businesses to engage in U.S. production, lawmakers offered a bipartisan bill that would provide a 25% tax credit for investments in semiconductor manufacturing infrastructure and tools. This comes less than a week after the Senate authorized $52 billion in support for the semiconductor industry to help the United States compete more effectively with China.

Semiconductor Stocks to Watch

"Global semiconductor sales are predicted to expand 19.7 percent in 2021 and 8.8 percent in 2022 as a result of their diverse uses and favorable government policies."

Texas Instruments (TXN)

To begin, Texas Instruments is a semiconductor company. The company manufactures and distributes semiconductors for electronic design and production all around the world. Currently, it operates in two segments: Analog and Embedded Processing. Also, TXN stock has increased by about 50% in the last year.

Texas Instruments has launched a new high-performance microcontroller (MCU) portfolio designed to advance real-time control, networking, and analytics applications at the edge. The company stated that it has finalized an agreement to buy Micron Technology 300-mm semiconductor facility in Lehi, Utah, for $900 million. This would enhance its competitive advantage in production and technology. So, it is considered to be a top semiconductor business today. 

Taiwan Semiconductor (TSM)

Taiwan Semiconductor (TSM), one of the world's leading semiconductor businesses, manufactures and distributes integrated circuits and semiconductors. TSM stated that its sales climbed by 22.8 percent each year. It is also worth noting that TSM claims to have started construction on its Arizona chip production facility. This $12 billion project is the company's first in the United States in two decades, and it will be one of the few manufacturing sites outside of Taiwan. This year, the company's shares may have traded sideways. TSM stock, but on the other hand, TSM stock has risen by more than 80% in the last year. Hence, it would be smart to buy TSM stock ahead of its earnings report.

About the author:

Dan Brdar is the President, CEO, and a Director of Ideal Power (IPWR). Ideal Power is a Texas-based company focused on developing its Bi-Directional, Bi-Polar Junction Transistor (B-TRANTM) semiconductor device. The widespread application of the device, from renewable energy installations to electric vehicles and charging stations, has caught the attention of the U.S. Navy, which is working with Ideal Power and B-TRAN semiconductor devices in its ship electrification program.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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