Supply chain shortages bring semiconductors to the spotlight
Thanks to the modern world's reliance on chips, the semiconductor industry is always a hot topic. Semiconductors are required for a wide variety of companies in multiple sectors on the stock market in order to continue advancing their technology. Examples of these industries include 5G, healthcare, consumer electronics, and the automotive sectors. All of these rely heavily on the continued production of semiconductors; therefore, the demand is through the roof.
Additionally, supply chain issues are causing a bottleneck, which in turn is causing chip shortages and making them unreasonably expensive. These shortages are predicted to last up to a couple of years, but nobody knows exactly what will happen. The best thing you can do to capitalize on this amazing industry is research companies that are making moves within the semiconductor space.
Advanced Micro Devices, Inc (NASDAQ:AMD)
Advanced Micro Devices (AMD) is one of the most popular names in the semiconductor space. AMD's stock price has grown over 3,000% since the company went public, which is well deserved as it continues to steal market share from competitors such as Intel. Up until about 2016, Intel was dominating as they controlled more than 70% of the central processing unit (CPU) market share. To compete, Advanced Micro Devices created their Ryzen microprocessor, which is much more affordable and was able to challenge Intel’s chips. Consumers naturally began to purchase more AMD chips as there was no longer a compelling reason to spend the extra money on the Intel chips. By 2021, Advanced Micro Devices had managed to increase its share of the market to a whopping 50%, and is working to gain more each day.
Nvidia Corporation (NASDAQ:NVDA)
Nvidia (NVDA) is a huge player in the semiconductor space as they have a firm grip on the graphics processing unit (GPU) market share. With the rise of popularity in crypto markets, Nvidia's GPUs are flying off the shelves as more people move to mine cryptocurrencies. The gaming market is Nvidia’s most significant revenue generator and accounted for about $3 billion of its second-quarter revenue in 2021. NVDA is also expanding into the latest technological advances such as AI, robotics, and machine learning, allowing it to compete with other AI competitors such as Intel and AMD. Nvidia’s second-largest revenue generator is its data center segment as they are continually upgrading their GPU technology to meet market demand. NVDA is currently working with other big tech companies like Google and Microsoft to develop parallel computing infrastructures for machine learning as the application of GPUs continues to grow in the artificial intelligence (AI) space due to their high processing power.
Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)
Taiwan Semiconductor (TSM) is the largest semiconductor chip foundry in the world. Until just recently, TSM had the largest market cap in the semiconductor industry of over $500 billion. However, Nvidia just surpassed them after its market cap moved near $700 billion. As a foundry, Taiwan Semiconductor's customer base includes many of the non-foundry semiconductor companies such as AMD, Nvidia, and even Apple. Its cutting-edge technology allows them to manufacture chips at the smallest node size, which provides their customers with a competitive advantage in their products. The relationships built between TSM and their customers are mutually beneficial, as it allows each to build differentiated leadership in their specific markets as they do business together. Because Taiwan Semiconductor specializes as a foundry, they can help eliminate their customers' capital expenditure risk while also not having to take on product risk themselves. This makes TSM a major player of the semiconductor industry, and allows for their customers to focus on upgrading their products while maintaining their competitive advantages.
Intel Corporation (NASDAQ:INTC)
Intel (INTC) has always been a staple in the semiconductor market. INTC controlled a dominant portion of the CPU market share for many years until competition like AMD came about and began to threaten their dominance. One of the main competitive advantages Intel has is its global, in-house factory network that allows them to manufacture at-scale much better than their competitors. This allows for better product optimization, supply resilience, and improved economics in general. For this reason, INTC has remained resilient in AMD’s attempts to continually steal market share because Intel is simply such a big powerhouse it is almost impossible to completely overthrow them. Intel is also working on building its world-class foundry business which will have Amazon and Qualcomm as their first customers. INTC has a roadmap that will take its product development through 2025 which strikes some investor confidence that Intel is making the right moves to continue being a powerhouse in the semiconductor industry.