At PBRG, we often say we don’t care about the headlines.
Whether it’s political chatter, trade wars, or conversations about interest rates, it doesn’t matter to us.
Short-term dips in the stock market may spook regular investors. But we remain calm and safely insulated – because our strategies always position us to profit.
But sometimes, macroeconomic trends and shifts can really work out in our favor… Take the following quote (emphasis added).
The United States and its allies should utilize targeted export controls on high-end semiconductor manufacturing equipment to protect existing technical advantages and slow the advancement of China’s semiconductor industry.
If you had to guess when and where this quote came from, you might think it was during the Trump administration. After all, the media covered the former president’s feelings toward China’s trade policies ad nauseam.
But this quote is actually from two weeks ago when former Google chairman Eric Schmidt gave his testimony to Congress and the Biden administration. And they were all ears…
The very next day, the president signed an executive order to review semiconductor shortages in the U.S.
This shows that despite the handover from one administration to the next… the U.S.’s stance on China and its push to dominate the semiconductor space remains consistent.
As I’ll tell you below, they’re one of the most important electronic components the world over. Having the lead in this particular market can act as a huge boon – and competitive advantage – to a country’s economy.
So it makes sense both the Trump and Biden administrations view protecting America’s position in the semiconductor space as a matter of national security.
And so much so that the Biden camp recently proposed a $30 billion investment initiative to expand U.S. semiconductor chip manufacturing. Today, I’ll show you a way to play this multibillion-dollar trend…
Reduced Supply Meets Increased Demand
First, let me give you a bit of background. Semiconductor chips, or “semi-chips,” are the small devices that power many of our modern-day technologies. Think computers, phones, data servers, and even cars.
As of last year, the global market for semiconductors is around $440 billion. And it’s projected to grow by about 14% to $501 billion in 2025.
Normally, the industry can forecast supply and demand. However, that all changed with COVID-19. Not only were supply chains disrupted by country and company closures, but demand for all things tech surged.
The pandemic bred fears of supply shortages which led to companies ordering larger quantities sooner than usual… which exacerbated the shortage fears.
In fact, industry giant Broadcom announced last Thursday that about 90% of its 2021 supply is already accounted for. Usually, it accounts for only about 25% of the annual supply at this point in the year.
Since semi-chips power our modern world, many world governments are increasingly viewing their supply as a matter of national security.
That’s the reason the U.S. Senate is mulling a $30 billion funding bill to stimulate the domestic semiconductor industry.
Senate Majority Leader Chuck Schumer specifically cited the need to compete against China’s growing semi-chip industry when he discussed the bill. The industry itself is pushing for tax credits on equipment since building or retooling a new plant is a multibillion-dollar affair.
So while the government seems gung-ho about moving forward with this initiative, many domestic companies don’t have the infrastructure to deliver homegrown semi-chips.
If the proposed legislation passes, U.S. semi-chip makers stand to benefit.
You see, many semiconductor companies don’t make their own chips. They design them, then subcontract other suppliers and manufacturers to create the chips.
So for U.S. companies in the space, it’s not as easy as flipping on a “go” switch when the government calls on them to protect national interests. They have to change their entire supply chain system to answer the call and benefit from the potential multibillion-dollar investment.
If you’re looking to ride this trend, then you should consider buying U.S. companies that make their own chips from scratch. They’ll cash in on the surge in domestic semi-chip manufacturing demand.
If you want broader exposure to the trend, then look into the SPDR S&P Semiconductor ETF (XSD). It holds over 35 of the top semiconductor companies, and is one of the cheapest and most liquid ETFs in the sector…
It’s only a matter of time before government spending boosts semiconductor shares higher but be sure to do your homework before investing in XSD or any new idea.
Analyst, Palm Beach Daily
P.S. Semi-chip manufacturers aren’t the only corner of the market that will see a boost from $30 billion in funding and increased production…
In fact, one semiconductor-reliant sector is predicted to reach a global market cap of $100 trillion before 2035… and we could see significant gains in the sector as soon as next week.
To help you prepare, Daily editor Teeka Tiwari has put together a presentation explaining how a major change in our financial system is set to trigger a massive shift of capital to this chip-reliant sector…
And that’s before the boost in semiconductor production increases the odds that this sector will become even more efficient and profitable.
Click here to watch Teeka’s presentation… and be sure to do so before next week.
Waiting could be the difference between substantial returns and financial regret.