“Chipageddon” is wreaking havoc...
And in one way or another, it’s going to affect you personally... even if you don’t own any tech stocks.
If you’ve been following along, you know there’s a severe shortage of microchips in the world today.
Which is a BIG problem. Because, as our Chief Analyst Stephen McBride says, these days the entire world runs on microchips.
Microchips—also called semiconductors—are the “brains” of modern electronics. They go in everything from airplanes and cars... to smartphones and computers... and even “low-tech” items like washer-dryers, refrigerators, and toaster ovens.
And today, there simply aren’t enough chips to go around.
I’ll give you two of Stephen’s top picks to play the chip shortage in just a minute. First, let’s look at the real-world effects...
- “Chipageddon,” as the media’s calling it, is hitting the auto industry the hardest…
Japanese carmaker Toyota was forced to shut its factory earlier this year due to a lack of chips.
Volkswagen… Ford… Honda… Fiat Chrysler… and Nissan are also idling their plants.
Here’s Stephen:
Did you know the average electric car is packed with roughly 3,000 chips?
These microchips often cost just a few dollars, but you can’t ship a $50,000 car without them. Everything from power steering to dashboards and automatic brakes runs on semis.
In fact, GM and Ford both warned the shortage could cut profits by $2 billion this year.
But Chipageddon reaches far beyond the auto industry.
According to The New York Times, the Taiwanese government just cut off irrigation to one-third of the country’s farmland to save water for chipmaking.
And if you’re one of the millions of Americans working from home, I hope your internet router is up to par.
Because if you need a new one soon, it won’t take a few days, or even a couple weeks to come in…
Per Bloomberg, “broadband providers are seeing delays of more than a year when ordering internet routers, becoming yet another victim of chip shortages…”
- There are several theories for why the world is running out of chips...
Some blame it on skyrocketing demand for PCs and electronics with everyone working and schooling from home.
Others blame the lingering effects of Trump’s trade war.
No matter the reason, one thing’s for sure.
The world needs more chips... and there are only a handful of companies that can make that happen.
Remember: Semiconductors underpin every exciting disruption you can think of.
Self-driving cars... artificial intelligence… computer vision… space tourism.
Without more chips... progress stops.
Which means chipmakers HAVE TO build dozens of new factories. In fact, they’re already breaking ground.
Here’s Stephen:
In January, Taiwan Semiconductor (TSMC) announced it would invest a record $25–$28 billion into new computer chip plants this year.
Rival Samsung said it will invest $116 billion in new factories by 2030. This includes a $17 billion state-of-the-art chip plant in Austin, Texas.
Last month, chip pioneer Intel announced it will spend $20 billion on two new chipmaking facilities in Arizona.
Even Washington has gotten involved. Congress passed the CHIPS for America Act last year. It incentivizes chipmakers to build new factories on US soil with huge tax breaks and billions of dollars in subsidies.
- According to Stephen, many chipmakers are in a “golden goose” position...
They have what the whole world needs.
And you can bet they’ll make billions selling their golden eggs.
Two of Stephen’s favorite chip stocks are ASML Holding (ASML) and Taiwan Semiconductor (TSM).
As he told his Disruption Investor subscribers recently:
ASML’s extreme ultraviolet lithography (EUV) machine is the only tool able to produce cutting-edge computer chips.
Last quarter, ASML sold nine EUV machines and received orders for six more. That doesn’t sound like much until you realize these 180-ton monsters cost $150+ million each. ASML expects EUV sales to top $6 billion in 2021.
Stephen first recommended ASML in June 2018 in his first-ever RiskHedge Report. The stock has climbed 200% since—but Stephen says it should continue to climb higher for years.
TSMC is also a great way to play this trend. Stephen again:
TSMC is the only company in the world producing leading-edge semiconductors today. And it just announced it’ll invest a record $28 billion in new chipmaking capacity this year. This will ensure TSMC stays the world’s premier chipmaker.
Demand for its chips is so high, capacity is booked out until this fall. This was a major reason why Toyota and others were forced to shut their doors. Germany’s finance minister even sent TSMC a letter begging it to prioritize auto chips.
ASML and TSMC sit atop the world’s most important industry. As both disruptors continue to break records, I expect they’ll be two of the world’s 10 largest companies by 2030.
- Before I sign off, a quick update on Coinbase’s IPO…
As our in-house IPO expert Justin Spittler told us, Coinbase is the most important US cryptocurrency (aka “digital currency”) company. Its platform allows users to buy and sell cryptocurrencies like Bitcoin and Ethereum.
So.. is it a buy? From our mailbag:
Any chance that we would be buying into the IPO, or we should still monitor and see how it turns out? Does the listing price seem like it is priced accurately? —Tony
Justin’s response:
Coinbase is an excellent company, and at the forefront of the booming cryptocurrency megatrend. But I do not recommend buying shares right now.
As you may have seen, Coinbase went public at an $86 billion valuation. That’s a much, much bigger company than we target at IPO Insider.
When there’s a ton of hype around an IPO, that enthusiasm gets “priced in.” And most of the upside is captured before retail investors like us even have a chance to buy it.
Nasdaq gave Coinbase a reference price of $250 a share ahead of Wednesday’s planned direct listing. But it began trading out of the gate at $381, 52% higher!
(It jumped as high as $429 before ending the day at $328.)
In short, a lot of Coinbase’s upside has already been captured. Having said that, I will closely monitor the price action and will let my IPO Insider subscribers know if and when it’s time to strike.
In the meantime, I suggest reading this RiskHedge Report I wrote last year, which covers this idea about avoiding big, hyped day-1 IPOs in more detail.
Chris Reilly
Executive Editor, RiskHedge
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