Dive into Opportunity in the Semiconductor Supply Chain

Thursday, March 04, 2021

One year ago, normal life grinded to a halt as the realities of living through a pandemic kicked in. With in-person interactions heavily restricted, trends that were already in the pipeline to change the way we work, shop and learn had to be implemented ... whether they were ready or not.

Computers and tablets flew off store shelves, and “jump on Zoom” became a household phrase. But behind the scenes, the supply chain that made this new age of the digital revolution possible started to fall apart. Manufacturing plants began to slow to an unsustainable crawl.

Added safety features like enhanced cleaning procedures and limited staff allowed companies to resume production … but at a reduced output. And that’s how we got in the predicament that we’re in right now — a global semiconductor shortage.

Semiconductors are found in just about every part of our daily life. Smartphones, televisions, washing machines ... even LED bulbs use semiconductors. And right now, lead times for these parts can be up to one year out.

Big automakers are ready to ramp up car production, but the shortages have forced General Motors Co. (NYSE: GM) and Ford Motor Co. (NYSE: F) to slash production. Governments all over the world are leaning on big chip producers to do everything they can to step it up. But it all boils down to time and money.

Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM) is the unmatched leader of the semiconductor industry. Last year, it solely accounted for more than 50% of the global semiconductor market.

The company bought over 1,000 acres of land in Phoenix to construct a $12 billion hub for semiconductor manufacturing. But manufacturing facilities just don’t pop up overnight. We’re still looking at a time delay. And all the while, demand continues to rise, and the gap continues to grow.

TSM has a solid “Buy” rating right now, and shares are up 55% over the past six months. This would be one of the most obvious ways to play the trend.

But if you take a look a little further into the supply chain, you’ll see there’s even more money to be made.

TSM isn’t the only company to announce a new, giant manufacturing facility. And even those companies that can’t afford to build a new factory are still going to expand as much as they can to boost capacity.

This in turn creates demand for the specialized equipment and technology that is required to make semiconductors. And over the next year — and even over the next three to five years — these companies are going to be raking in the dough. They’ll be making profits not just off TSM, but every company in the semiconductor race.

I found three semiconductor equipment companies that are screaming “buy” right now. Every single piece of technology that you own has used at least one piece of tech from the following companies in its production. In reality, most have used a combination from all three.

First, we’ve got one of the world’s biggest equipment makers, Applied Materials, Inc (Nasdaq: AMAT). Shares of this company are up 91% in the past six months.

Next up is Lam Research Corp (Nasdaq: LRCX). Lam is constantly working to improve precision for semiconductor wafer manufacturing. Shares are up 68% in the past six months.

Finally, there is KLA Corp. (Nasdaq: KLAC). The company claims that without it, virtually no laptop, smartphone, VR device or smart car would be around. It provides the technology and devices used for inspection and computational analytics during semiconductor manufacturing. Shares are up 54% in the past six months.

As I said earlier, semiconductor companies have no choice but to spend money right now. That means all three of these companies are set to profit.

This is one trend I’ll be following closely, and I’ll be sure to let you know if I see other ways to play it.

Best,

Kelly

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