In this article, we discuss 10 stocks that will benefit from the CHIPS Act.
The Chips and Science Act will provide grants and subsidies worth $280 billion to the US technology and semiconductor industry. The National Science Foundation will be provided funding of $81 billion so it can focus more on technology and boost growth and innovation in the country. The bill will allocate $52 billion to amp up the domestic chip making industry, so that the United States is not reliant on Asia for semiconductor chips and related devices. Although the US has leading chip designers such as NVIDIA Corporation (NASDAQ:NVDA), QUALCOMM Incorporated (NASDAQ:QCOM), and Broadcom Inc. (NASDAQ:AVGO), it lacks domestic chip manufacturers and is largely reliant on China, Taiwan, and South Korea.
The political tensions on rise between China and the US further caused dread in the semiconductor industry, which was facing severe supply constraints already as a result of pandemic-related lockdowns in China. Consequently, several sectors including automobiles, communications, and defense suffered. The US military requires approximately 1.9 billion chips annually for weapons and communications. Similarly, Tesla, Inc. (NASDAQ:TSLA) announced that in light of the global chip shortage, it would not roll out new models in 2022.
Due to the mounting tensions between Washington and Beijing, the US government has required companies who receive subsidies from the CHIPS Act to not simultaneously increase their production of advanced chips in China or Russia. The White House supports this measure.
Our Methodology
We selected semiconductor firms that are positioned to benefit from the subsidies from the CHIPS Act. This includes semiconductor manufacturing, equipment, and design firms that will utilize the grant money to expand their operations in the United States. We have mentioned the latest analyst ratings and the hedge fund sentiment around the securities as of the first quarter of 2022.
electronics-6055226_1280
Stocks That Will Benefit from CHIPS Act
10. GLOBALFOUNDRIES Inc. (NASDAQ:GFS)
Number of Hedge Fund Holders: 24
GLOBALFOUNDRIES Inc. (NASDAQ:GFS) was founded in 2009 and is based in Malta, New York. It is a semiconductor foundry that manufactures integrated circuits, microprocessors, mobile application processors, radio frequency modems, microcontrollers, power management units, and microelectromechanical systems. The company also offers wafer fabrication services and technologies.
GLOBALFOUNDRIES Inc. (NASDAQ:GFS) is increasing its manufacturing capacity in the United States, Singapore, and Germany, which will enable the firm to raise its output by 60% by 2024, compared to its 2020 levels. GLOBALFOUNDRIES Inc. (NASDAQ:GFS) is one of the biggest beneficiaries of the CHIPS Act, and the company stressed that the government subsidy is essential to give the US semiconductor companies a chance to compete globally and overcome supply bottlenecks.
On July 20, Deutsche Bank analyst Ross Seymore reaffirmed a Buy recommendation on GLOBALFOUNDRIES Inc. (NASDAQ:GFS) but lowered the price target on the shares to $55 from $70. The current “purgatory” stage of the semiconductor cycle prevails heading into the Q2 earnings season, the analyst told investors. Despite predicting positive activity across most of the semiconductor sector in Q2 and Q3, the analyst said investors seem to be awaiting a “widespread deck-clearing” guide-down before jumping back into semi stocks. He is now “more actively factoring in accelerating macro/sector headwinds” into his 2023 estimates, and slashing revenue, earnings, and price targets by an average of 4%, 10%, and 14%, respectively.
According to Insider Monkey’s data, 24 hedge funds were bullish on GLOBALFOUNDRIES Inc. (NASDAQ:GFS) at the end of Q1 2022, with collective stakes worth $791.2 million, compared to 23 the prior quarter worth $426.2 million. David Goel and Paul Ferri’s Matrix Capital Management is the leading position holder in the company, with 9.17 million shares valued at about $573 million.
Like NVIDIA Corporation (NASDAQ:NVDA), QUALCOMM Incorporated (NASDAQ:QCOM), and Broadcom Inc. (NASDAQ:AVGO), GLOBALFOUNDRIES Inc. (NASDAQ:GFS) is making headlines as the US domestic semiconductor industry has come into focus with the approval of the CHIPS Act.
9. Texas Instruments Incorporated (NASDAQ:TXN)
Number of Hedge Fund Holders: 46
Texas Instruments Incorporated (NASDAQ:TXN) designs and manufactures semiconductors for electronics designers and manufacturers worldwide. The company operates through two segments – Analog and Embedded Processing. On July 27, the company reported Q2 GAAP earnings per share of $2.45, beating market estimates by $0.33. The revenue climbed 13.8% year over year to $5.81 billion, outperforming Street consensus by $560 million. According to its Q3 guidance, Texas Instruments Incorporated (NASDAQ:TXN) expects revenue in the range of $4.90 billion to $5.30 billion, versus a $4.65 billion consensus. The company forecasts earnings per share ranging from $2.23 to $2.51, compared to $2.15 per share earnings consensus.
Texas Instruments Incorporated (NASDAQ:TXN) announced in November 2021 that it selected Sherman, Texas as a site to open about four plants worth up to $30 billion. The company started construction in Sherman this May and already got substantial tax cuts from local governments for the project. The CHIPS Act is “gravy on top” for Texas Instruments Incorporated (NASDAQ:TXN), according to CEO Rich Templeton.
On July 27, Deutsche Bank analyst Ross Seymore raised the price target on Texas Instruments Incorporated (NASDAQ:TXN) to $165 from $160 and kept a Hold rating on the shares after the Q2 results. The analyst still views Texas Instruments Incorporated (NASDAQ:TXN) as one of the top quality firms in the semiconductor space, but he believes the combination of higher macro/sector-specific demand and supply headwinds will keep the shares comparatively range bound.
According to Insider Monkey’s data, 46 hedge funds were long Texas Instruments Incorporated (NASDAQ:TXN) at the end of the first quarter of 2022, compared to 53 funds in the last quarter. Jean-Marie Eveillard’s First Eagle Investment Management is the leading stakeholder of the company, with 3.3 million shares worth about $622 million.
Here is what Davis Opportunity Fund has to say about Texas Instruments Incorporated (NASDAQ:TXN) in its Q4 2021 investor letter:
“Within technology and communication services, we own a number of online businesses and semiconductor related companies, including Alphabet, Amazon, Intel, Applied Materials and Texas Instruments. Within the realm of high technology, we believe that leadership positions reflect enduring and widening competitive advantages over smaller competitors, with few exceptions. This is because online businesses, as well as semiconductor companies, benefit from economies of scale. An online search and advertising engine will, in general, be more profitable per unit of cost as it grows larger in terms of users and advertising dollars. It is a hub-and-spoke model, in other words, where it is generally not necessary to grow expenses at the same rate that revenues grow beyond a certain threshold. Therefore, returns on capital tend to be higher, the larger and more dominant the online search company is.”
8. Lam Research Corporation (NASDAQ:LRCX)
Number of Hedge Fund Holders: 59
Lam Research Corporation (NASDAQ:LRCX) designs, manufactures, and services semiconductor processing equipment used in the fabrication of integrated circuits. As the government pours money into the semiconductor industry in the United States, demand for manufacturing and processing equipment will increase locally. Lam Research Corporation (NASDAQ:LRCX) is thus one of the beneficiaries of the CHIPS Act.
On July 27, the company reported its FQ4 results, posting non-GAAP earnings per share of $8.83, exceeding Street estimates by $1.50. The revenue of $4.64 billion jumped 14% on a quarter over quarter basis, beating analysts’ predictions by $430 million. Lam Research Corporation (NASDAQ:LRCX) guided Q3 2022 above Street consensus, with a revenue of $4.9 billion and earnings per share of $9.50, compared to market estimates of $4.6 billion and $8.73, respectively.
Wells Fargo analyst Joe Quatrochi raised the price target on Lam Research Corporation (NASDAQ:LRCX) to $475 from $460 and maintained an Equal Weight rating on the shares on July 28. While Lam Research Corporation (NASDAQ:LRCX)’s better-than-anticipated Q4 results/Q1 guide reflect improving supply chain environment and execution, the analyst thinks investors will focus on increasing China export restrictions and WFE commentary.
Among the hedge funds tracked by Insider Monkey, 59 funds were bullish on Lam Research Corporation (NASDAQ:LRCX) at the end of Q1 2022, compared to 62 funds in the prior quarter. Ken Fisher’s Fisher Asset Management is the largest shareholder of the company, with 1.90 million shares worth $1.02 billion.
Here is what Artisan Global Value Fund has to say about Lam Research Corporation (NYSE:LRCX) in its Q2 2022 investor letter:
“Lam is one of the world’s largest suppliers of semiconductor wafer fabrication equipment (WFE). Manufacturing semiconductors is incredibly complex with tolerances measured in nanometers. Consistent improvements in technology are necessary for manufacturers to improve the cost, functionality and volume of semiconductors. WFE manufacturers such as Lam provide the necessary machines and technology. The WFE industry is highly consolidated with only five global players holding more than two thirds of the market. Because of the value-added nature of the equipment and services, the industry is highly profitable with margins and returns on capital that most CEOs can only dream of.”
7. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 71
Broadcom Inc. (NASDAQ:AVGO) is a California-based global supplier of semiconductor and infrastructure software products. Broadcom Inc. (NASDAQ:AVGO)’s Q2 2022 EPS of $9.07 and revenue of $8.1 billion topped market consensus estimates by $0.35 and $190 million, respectively. The company guided a Q3 revenue of approximately $8.4 billion, compared to a consensus of $7.97 billion. Broadcom Inc. (NASDAQ:AVGO) also authorized a new share repurchase program to buy back up to $10 billion of common stock through December 31, 2023. As the semiconductor industry gets a financial boost through the CHIPS Act, demand for Broadcom Inc. (NASDAQ:AVGO)’s product offerings will increase.
On July 20, Deutsche Bank analyst Ross Seymore maintained a Buy rating on Broadcom Inc. (NASDAQ:AVGO) and lowered the price target on the stock to $635 from $700. The analyst is now “more actively factoring in accelerating macro/sector headwinds” into his 2023 estimates, and slashing his revenue, earnings, and price targets on average by 4%, 10%, and 14% accordingly.
According to Insider Monkey’s database, 71 hedge funds were bullish on Broadcom Inc. (NASDAQ:AVGO) at the end of March 2022, up from 62 funds in the earlier quarter. William Von Mueffling’s Cantillon Capital Management featured as a prominent stakeholder of the company, with more than 1 million shares worth $652.18 million.
Here is what ClearBridge Investments Sustainability Leaders Strategy has to say about Broadcom Inc. (NASDAQ:AVGO) in its Q4 2021 investor letter:
“However, ClearBridge portfolio companies are responding by supporting their workforces and showing resilience in adapting and thriving. Semiconductor companies ClearBridge owns and engages with have been successful in advancing vaccinations in their global supply chains. In Malaysia, for example, Broadcom has taken part in PIKAS, a public-private partnership vaccination program focusing on the workforce in critical manufacturing sectors. By the summer of 2021 Broadcom was able to get over 90% of workers in its Penang factory at least one dose of vaccine, and roughly 73% fully vaccinated. Companies in the program also pay the administration cost for vaccinations including cases where the employee is no longer employed by the company before full immunization of the employee.”
6. Applied Materials, Inc. (NASDAQ:AMAT)
Number of Hedge Fund Holders: 74
Applied Materials, Inc. (NASDAQ:AMAT) was incorporated in 1967 and is headquartered in Santa Clara, California. The company provides manufacturing equipment, services, and software to the semiconductor industry. As the CHIPS Act increases semiconductor production within the United States, demand for Applied Materials, Inc. (NASDAQ:AMAT)’s equipment and software will rise as a result. Despite missing Q2 consensus estimates for earnings per share and revenue, Applied Materials, Inc. (NASDAQ:AMAT) generated $415 million in cash from operations and returned $2.01 billion to shareholders in the form of share repurchases and dividends worth $1.80 billion and $211 million, respectively.
On July 25, Morgan Stanley analyst Joseph Moore reaffirmed an Equal Weight rating on Applied Materials, Inc. (NASDAQ:AMAT) and lowered the firm’s price target on the stock to $115 from $133. He slashed his calendar year 2023 wafer fabrication equipment estimate to about $83 billion from $90 billion, though he argued that there is “a fair amount of guesswork in a 2023 WFE estimate at this point”, with demand for equipment dampening, but not enough to put an end to supply constraints in the short-term. He remains optimistic on semi equipment over devices and sees 2023 as a trough, regardless of upcoming headwinds, the analyst added.
Among the hedge funds tracked by Insider Monkey, David Blood and Al Gore’s Generation Investment Management held the leading position in Applied Materials, Inc. (NASDAQ:AMAT) in Q1 2022, consisting of 4.25 million shares worth $561 million. Overall, 74 hedge funds were bullish on Applied Materials, Inc. (NASDAQ:AMAT) at the end of March 2022, compared to 78 funds a quarter earlier.
Like NVIDIA Corporation (NASDAQ:NVDA), QUALCOMM Incorporated (NASDAQ:QCOM), and Broadcom Inc. (NASDAQ:AVGO), Applied Materials, Inc. (NASDAQ:AMAT) is a notable American semiconductor stock to watch.
Here is what Davis Opportunity Fund has to say about Applied Materials, Inc. (NASDAQ:AMAT) in its Q4 2021 investor letter:
“Within technology and communication services, we own a number of online businesses and semiconductor related companies, including Alphabet, Amazon, Intel, Applied Materials and Texas Instruments. Within the realm of high technology, we believe that leadership positions reflect enduring and widening competitive advantages over smaller competitors, with few exceptions. This is because online businesses, as well as semiconductor companies, benefit from economies of scale. An online search and advertising engine will, in general, be more profitable per unit of cost as it grows larger in terms of users and advertising dollars. It is a hub-and-spoke model, in other words, where it is generally not necessary to grow expenses at the same rate that revenues grow beyond a certain threshold. Therefore, returns on capital tend to be higher, the larger and more dominant the online search company is.”
5. Intel Corporation (NASDAQ:INTC)
Number of Hedge Fund Holders: 76
Intel Corporation (NASDAQ:INTC), the American multinational technology corporation that produces semiconductor chips as well as specializing in computer hardware, automation, and artificial intelligence, is undoubtedly the largest beneficiary of the CHIPS Act. The Act would allow Intel Corporation (NASDAQ:INTC) to build factories and grant the company an investment tax credit to purchase tools and equipment for its new facilities. Intel Corporation (NASDAQ:INTC) said earlier this year that it would spend $20 billion on a factory in Ohio, which will likely be subsidized by the CHIPS Act and the FABS Act would lend it another $5 billion to $10 billion to equip the factory.
Northland analyst Gus Richard on August 1 observed that Intel Corporation (NASDAQ:INTC)’s valuation is now less than AMD, and he believes that Intel Corporation (NASDAQ:INTC)’s manufacturing scale is valuable to the U.S. Department of Defense and will “persevere in one form or another”. If Intel Corporation (NASDAQ:INTC) “continues to stumble,” he forecasts the breakup value to be $235 billion or $57 per share, and so he sees “little downside risk and a lot of upside,” even if the company does not execute, given this breakup value and de-risked estimates, robust valuation support, and a 4% dividend yield. He maintained an Outperform rating and a $55 price target on Intel Corporation (NASDAQ:INTC) shares.
Among the hedge funds tracked by Insider Monkey, 76 funds reported owning stakes in Intel Corporation (NASDAQ:INTC) at the end of Q1 2022, up from 72 funds in the prior quarter. Seth Klarman’s Baupost Group is the largest shareholder of the company, with 16.5 million shares worth $822.3 million.
Here is what O’Keefe Stevens Advisory has to say about Intel Corporation (NASDAQ:INTC) in its Q1 2022 investor letter:
“Intel announced they are removing stock-based compensation from non-GAAP earnings in 2022 to report results aligning with semiconductor peers. This may seem like a reasonable thing to do as comparability between peers becomes easier. On the other hand, what exactly is the point of adjusted earnings? It is not to conform to some industry norm or because the management teams need to make performance metrics. The point of adjusting earnings is to present results in a light that more closely reflects the actual underlying performance of the business. That is, backing out expenses that might be one-time in nature, such as legal or fire expenses. First off, share-based compensation is an actual expense. Decreasing my ownership stake in a company without receiving any compensation is not free. If a company paid its employees in all stock, would they add back the entire SBC? What a margin profile that would be. Second, should a company be worried about reporting results similar to other companies? Every company is unique. Management should not waste time determining what expenses should be excluded. Run the business, don’t worry about adjusting the numbers.”
4. Samsung Electronics Co., Ltd. (OTC:005930.KS)
Number of Hedge Fund Holders: N/A
Samsung Electronics Co., Ltd. (OTC:005930.KS) is a South Korean multinational technology firm that produces semiconductors and display panels. Samsung Semiconductor, Inc. is a Silicon Valley-based multi-billion dollar subsidiary of Samsung Electronics Co., Ltd. (OTC:005930.KS). Roughly $40 billion of the total $52 billion from the CHIPS Act is set for chip manufacturing incentives that will potentially benefit the likes of Samsung Electronics Co., Ltd. (OTC:005930.KS). On July 28, the company reported Q2 GAAP earnings per share of KRW1613. The company recorded a quarterly revenue of KRW77.2 trillion, up 21.3% year over year.
3. Micron Technology, Inc. (NASDAQ:MU)
Number of Hedge Fund Holders: 78
Micron Technology, Inc. (NASDAQ:MU) is an American producer of memory chips and storage products. The company operates through four segments – Compute and Networking Business Unit, Mobile Business Unit, Storage Business Unit, and Embedded Business Unit. The company plans to bring cutting-edge memory manufacturing to the United States with the CHIPS Act, which offers about $280 billion for domestic production, investment tax credit, and scientific research.
On July 27, Baird analyst Tristan Gerra said that the U.S. Senate passing the CHIPS Act could have a deflationary impact on semiconductor stocks in the intermediate-term as it will ultimately solve the supply challenges. The analyst said that the Act could result in Micron Technology, Inc. (NASDAQ:MU) reporting incremental, long-term capacity investments in the United States, and maintained a Neutral rating on the stock.
According to Insider Monkey’s data, 78 hedge funds were bullish on Micron Technology, Inc. (NASDAQ:MU) at the conclusion of the first quarter of 2022, compared to 83 funds in the last quarter. Matrix Capital Management is a prominent stakeholder of the company, with 4 million shares worth $311.56 million.
Here is what Hazelton Capital Partners has to say about Micron Technology, Inc. (NASDAQ:MU) in its Q3 2021 investor letter:
“It’s hard to explain how shares of Micron Technology, manufacturer of DRAM and NAND semiconductor chips, can fall during a global chip shortage. In most industries, focusing on demand can give you a clear insight into what lays ahead for a company. Today, the memory and storage chip industry is no different. However, in the past, companies focused on market share led to the reckless build out of chip fabrication plants (FABs), oversupply, falling average selling prices (ASPs) of memory and storage chips, lower margins, and declining cash flows. As the industry consolidated – there are now just 3 major producers of DRAM and 5 on the NAND side – rational behavior among the key players began to take hold as competitors began focusing more on R&D. Currently, chip pricing remains cyclical although less so than in the past and that cyclicality has a long-term upward bias. The ongoing transition to newer and more robust platforms (3D 176-layer NAND & 1-Alpha node DRAM) has provided the memory and storage chip industry with improved supply capacity under its current manufacturing footprint, ultimately pressuring ASPs. Over the past three years, as most of the large platform conversions have already taken place, being able to add more bits per wafer has reached a saturation point. With no major FAB build outs planned in the near-term by competitors Samsung or SK Hynix, constrained supply and flattening cost curves should lead to durable and upward sloping ASPs once the recent volatility from the chip shortage subsides.
Currently Micron Technology trades at just 8x 2022 estimated earnings. MU is expecting growth in both DRAM and NAND not just from the supply of more chips to data centers, artificial intelligence, the auto sector, and mobile devices, but also from greater demand for gigabyte capacity per unit within those segments. With a healthy balance sheet, improving return on invested capital, and expanding cash flows, not only should Micron benefit from improving future earnings but its multiple should also reflect the transition to a flattening cost curve.”
2. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Holders: 81
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) manufactures and sells integrated circuits and related semiconductor devices in Taiwan, China, Europe, the Middle East, Africa, Japan, the United States, and internationally. Although it is a Taiwanese company, the CHIPS Act will benefit TSMC as it indicated that it would begin US production in 2024. The company is now constructing a $12 billion fab in Arizona to help enhance domestic chip production.
On July 14, Susquehanna analyst Mehdi Hosseini assigned a Neutral rating to Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and lowered the price target on the shares to $88 from $90. The analyst observed the company’s robust revenues in 2022 actually make 2023 more challenging by comparison. He said it is encouraging to hear Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) management acknowledging a looming inventory correction, but noted the 1H23 inventory correction will be harsher than anticipated.
According to Insider Monkey’s data, 81 hedge funds were bullish on Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) at the end of Q1 2022, up from 72 funds in the last quarter. Ken Fisher’s Fisher Asset Management featured as the leading position holder in the company, with more than 26 million shares valued at $2.73 billion.
Here is what Wedgewood Partners has to say about Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2022 investor letter:
“Taiwan Semiconductor detracted from performance despite a business performance that saw revenue accelerate to over +30% growth. The Company is one of the few fabs in the world that is capable of manufacturing leading-edge integrated circuits (IC). The Company’s leading-edge capacity is being absorbed by high-performance computing applications, particularly by Apple, which has become an integrated circuit powerhouse over the past decade. The Company’s aggressive investment in leading-edge equipment, tight development with fabless IC designers, and embrace of open development libraries should continue to foster a superior competitive position and attractive long-term growth.”
1. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Holders: 83
Advanced Micro Devices, Inc. (NASDAQ:AMD) is a California-based semiconductor company that manufactures microprocessors, chipsets, discrete and integrated graphics processing units, server and embedded processors, and semi-custom System-on-Chip (SoC) products. For fabless businesses like Advanced Micro Devices, Inc. (NASDAQ:AMD), the CHIPS Act will potentially create more sophisticated manufacturing options.
On August 3, Raymond James analyst Chris Caso reiterated a Strong Buy rating on Advanced Micro Devices, Inc. (NASDAQ:AMD) and lowered the price target on the shares to $130 from $160. Advanced Micro Devices, Inc. (NASDAQ:AMD) reported another “solid” quarter, with revenue exceeding the consensus modestly, primarily due to really robust Datacenter and Embedded growth year over year, the analyst told investors. While the third quarter guidance was “disappointing”, the company’s full-year outlook implies a more robust growth rate in December, the analyst added. He thinks regardless of a weakening macro backdrop, a strong new product pipeline and advanced customer engagements will drive long-term gains for Advanced Micro Devices, Inc. (NASDAQ:AMD).
According to Insider Monkey’s data, 83 hedge funds were bullish on Advanced Micro Devices, Inc. (NASDAQ:AMD) at the end of Q1 2022, up from 69 funds in the last quarter. Jim Simons’ Renaissance Technologies is a prominent stakeholder of the company, with 7.10 million shares worth over $777 million.
Here is what Carillon Tower Advisers has to say about Advanced Micro Devices, Inc. (NASDAQ:AMD) in its Q4 2021 investor letter:
“Advanced Micro Devices (AMD) supplies semiconductor chips for central processing units (CPUs) and graphic processing units (GPUs). The firm has been gaining share against its primary competitor in the datacenter server CPU space, as this rival has been unable to match the design and manufacturing capabilities of AMD and its partners. Investors are also looking forward to the closing of the previously announced merger with a semiconductor manufacturer that is another one of the portfolio’s holdings. The merger will increase AMD’s capabilities in the Field Programmable Gate Array (FPGA) chip space, and the combined company should possess the potential to win additional market share in the datacenter chip market.”
You can also take a look at 10 Stocks That the Russia-Ukraine War Will Affect in the Future and 10 Best Stocks For Inflation According to Redditors.
Follow Insider Monkey on Twitter
Suggested articles:
- 10 Medical Marijuana Stocks To Buy Now
- 10 Crypto Companies Hit By the Recent Crash
- This Analyst Is Bearish on These 15 Retail Stocks Amid “Soft Landing” Expectations
Disclosure: None. 10 Stocks That Will Benefit from CHIPS Act is originally published on Insider Monkey.
