The demand for computer chips in cars, electrical grinds, and just about every electronic product rose by about 17% from 2019 to 2021 despite or, perhaps, partially because of the pandemic. But, supply did not budge. Not only that but computer chip makers have not boosted their capacity to make more chips over the last couple of years leading to “alarming chip shortages” according to the US Department of Commerce as reported in The New York Times. We take a look at increasing demand for computer chips and your investments.
Investing in Companies That Make Computer Chips
If there are not enough computer chips the prices will go up so investing in chip makers might be a good idea. In a recent article about this issue we noted that possible computer chip maker investments might include Microchip, Marvell Technology, STMicroelectronics, NXP Semiconductors, Onsemi, or Infineon. Intel, Taiwan Semiconductor, and Samsung are all planning multibillion dollar expansions in the USA but none of these will be ready to turn out chips for at least five years. The Intel and Samsung expansions are in the $20 billion range and the Taiwan Semiconductor expansions will total $100 billion worldwide with a substantial part invested in the USA.
Investing in Companies That Use Computer Chips Profitably
Two things seem to be happening in the world of using chips for electronics. One is that companies on the high end like Taiwan Semiconductor, Intel, Samsung and others are specializing some of their operations for things like chips devoted to 5G uses. Some products from some companies will rely on the latest and greatest technology in chips. And, electronics designers are rethinking designs so that products use multipurpose “off the shelf” chips instead of ones that are designed for a specific use. Companies that go this route with their products will typically be using cheaper and more readily available chips and will be much less likely to have to shut down assembly lines when there are specific shortages. Unfortunately, the only way that an investor will recognize this will be in hindsight when a company is not shutting down its production lines at times like these.
Computer Chips and the Metaverse
We wrote recently about investing in the Metaverse. As we noted in that article, the Metaverse is largely an idea today similar to the internet as an idea and not a reality in the 1970s. Success in that realm will depend in part on how effectively computer chips are integrated into the necessary applications without making products too expensive, difficult to produce, and prone to production shutdowns due to chip shortages. The Metaverse is likely to become another one of the technological arenas where changes come rapidly and repeatedly. As such, product and application designs that use standard chips that are easily programmable will likely be more profitable than ones that relay on single use chips that will end up being outdated almost as soon as they go into use!
In the short term the best places to profit from the increasing demand for computer chips will likely be computer chip makers that can ramp up production of standard chips in a hurry. Picking and choosing who uses chips most effectively will come later.
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