It’s *Still* Not Too Late To Make Money off This Chip Shortage
An Update on the semiconductor industry and supply issues
Months back I wrote an article titled How to Make Money Off This “Chip Shortage.”
That was back in mid-February. At the time I was sick of hearing about how there was a shortage of semiconductor chips and the issues it was causing. Unfortunately, the issue is still around, even worse now, and will be a prolonged one.
In the previous article, I explained what semiconductor chips are, why there was a shortage, and some stocks to look into. In this article, I’ll give an update on companies being impacted, examine how the previously mentioned stocks are doing, and offer a new stock to invest in from the shortage.
Who is being impacted?
Everyone.
In February, major auto manufacturers such as General Motors and Ford noted in their earnings call that they were being impacted by the chip shortage. As a result, they would have issues meeting production goals.
The lack of chips available to auto manufacturers is part of the reason new and used car prices are up so much recently. Federal Reserve chairman Jerome Powell noted such in his address on Wednesday.
While it was originally major car companies impacted at first, everyone is now feeling the impact.
Apple is the largest company (by market cap) in the world, and they are now expecting to feel the pressure from the shortage.
On Tuesday (7/27) Apple reported quarterly earnings. And they killed it. Here’s how good they did, “Every one of Apple’s major product lines grew over 12% on an annual basis.”
Yet their stock was down afterward. Here’s why, “Apple shares fell after executives warned that chip supply constraints could impact iPhones and iPads this quarter.”
Apple isn’t the only big-time company now feeling the impact. On Monday, Tesla reported earnings and Elon musk expressed a similar sentiment.
Referring to the production of Tesla’s Cybertruck, he said, “to scale to volume that’s meaningful for customer deliveries, we’ve got to solve the chip shortage.”
If some of the largest and most successful companies are impacted, almost every company will feel an impact from this shortage.
When will this shortage end?
No one knows.
Part of the reason it is hard to tell is that no one knows when issues from COVID-19 will end and supply chains will get back to normal. Another reason is that demand for most goods has fluctuated greatly in the past two years so it is hard to forecast demand in the future.
AMD’s CEO thinks the chip shortage will improve next year. While Intel’s CEO believes the shortage could last until 2023.
Either way, it won’t end anytime soon. Which is an opportunity to make money.
Semiconductor Stocks
Unfortunately, I don’t have a crystal ball. The stocks I mentioned back in February haven’t done much. To make matters worse, the general market has done well in comparison during that time period.
To my credit, I mentioned the strategy of investing in the “winner of an industry”, and Nvidia is considered top of this industry. Nvidia has killed it, up 30%, and even had a 4:1 stock split earlier in July.
But that’s about all I got right. The rest have not performed well. To make things worse, I personally invested in AMD. At least they’re not negative.
Qualcomm reported earnings Wednesday (7/28) after market closing, beating expectations. Their semiconductor business reported a 70% annual increase.
And of the three semiconductor ETFs I previously mentioned, none have moved.
One company I did not mention in the previous article that is worth considering is Taiwan Semiconductor Manufacturing Company ($TSM).
Their stock is down 16% since February 12th, if you like investing in “bargains.” But remember there’s almost always a reason a stock’s price is down.
Outlook
I still believe the semiconductor industry is a good place to invest. Maybe I was wrong before. Or maybe I was early — AMD is up big this week.
While investing in these companies in February wouldn’t have paid off by now (with the exception of Nvidia), sometimes it can be a good thing for stocks to move sideways for a while. I still believe in this industry for a long-term opportunity.
The chip shortage won’t be solved soon. At the earliest, it will be resolved in 2022. And this issue is impacting all companies. Whether someone invests in the industry or not, this shortage will also impact consumers and everyday purchases.
The above references an opinion and is for information purposes only. It is not investment advice. Seek a duly licensed professional for investment advice.
