What You Need To Know
President Joe Biden is intensifying his strategy to limit China's technological advancement, particularly in the semiconductor industry. This approach involves two key elements: restricting China's access to cutting-edge chips and strengthening semiconductor production within the United States. The focus has now shifted to semiconductor packaging, a critical aspect of chip performance and an area where China is rapidly gaining ground.
The U.S. government recognizes the importance of advanced packaging, an area not yet constrained by sanctions, where China is making significant strides. This sector, once considered peripheral in the semiconductor industry, is now at the forefront of technological innovation and competition. The U.S., with just 3% of the global packaging capacity, is significantly behind in this arena.
In response, the Biden administration has introduced a $3 billion National Advanced Packaging Manufacturing Program aimed at establishing high-volume packaging facilities by the end of the decade. This initiative seeks to reduce reliance on Asian supply chains and bolster national security. The focus on packaging complements the existing efforts under the CHIPS and Science Act, emphasizing the interconnectedness of chipmaking and packaging.
Advanced packaging is pivotal for China to circumvent technology transfer restrictions and enhance its semiconductor capabilities. It allows for the creation of faster, cost-effective systems by integrating various chips, a technique that's increasingly essential given the physical limitations of traditional chip miniaturization.
The global landscape of semiconductor manufacturing is rapidly evolving, with advanced packaging emerging as a critical component. This technology is reshaping the industry, enabling the integration of diverse chip types and enhancing processing speeds.
China, holding a significant market share in assembly, testing, and packaging, sees advanced packaging as a strategic advantage.
The U.S. is responding to this challenge by investing heavily in its own advanced packaging capabilities, aiming to achieve a more secure and self-reliant semiconductor supply chain. The initiative reflects a broader shift in the industry, moving away from solely focusing on chip miniaturization to a more modular, integrated approach in semiconductor design and manufacturing.
Why This Is Important for Retail Investors
Enhanced Investment Opportunities: The focus on advanced semiconductor packaging opens up new investment avenues within the tech sector. Retail investors can capitalize on this shift by investing in companies actively involved in advanced packaging, semiconductor production, or related supply chains. This diversification offers potential growth and profitability as the demand for these technologies increases.
National Security and Economic Implications: The U.S. government's initiative to bolster domestic semiconductor packaging capabilities directly impacts national security and economic stability. Investments in companies that align with these government initiatives might benefit from federal support and increased demand. This alignment can provide a more stable investment environment for retail investors, particularly in a sector known for its volatility.
Global Competitive Edge: As the U.S. seeks to regain its footing in the semiconductor industry and reduce reliance on foreign supply chains, companies leading these efforts may experience growth and increased market share. Retail investors have the opportunity to invest in these potentially rising stars of the tech world, gaining from their growth and global competitiveness.
Technological Advancements and Innovation: The shift towards advanced packaging technology signals a new era of innovation in the semiconductor industry. Investing in companies at the forefront of this shift allows retail investors to be part of emerging technological trends. These companies are likely to be key players in developing next-generation technologies, providing long-term growth potential.
Resilience Against Supply Chain Disruptions: The recent focus on developing domestic capabilities in semiconductor packaging aims to mitigate risks associated with global supply chain disruptions. Investing in companies that contribute to a more self-reliant and secure semiconductor supply chain can offer retail investors a hedge against global supply chain vulnerabilities, leading to potentially more stable and resilient investment options.
How Can You Use This Information?
Here are some of the investing ideas that can be explored using this information:
Value Investing
Investors can identify undervalued companies within the semiconductor industry that are poised for growth due to their involvement in advanced packaging technologies. These might include established companies with strong fundamentals that are expanding into this new area or smaller companies that are undervalued relative to their potential in this emerging market.
Value investing searches for undervalued companies that trade for less than their intrinsic values, with the expectation that they will eventually be recognized by the market.
Growth Investing
The semiconductor packaging sector, especially advanced technologies, offers substantial growth opportunities. Investing in companies that are leading in this area or have significant R&D investments in advanced packaging technologies could provide substantial returns. These companies might be involved in innovation, production, or supply of advanced packaging solutions and are expected to grow as demand for these technologies increases.
Growth investing focuses on stocks of companies expected to grow at an above-average rate compared to other stocks in the market; learn more in our article titled 'What is Growth Investing?'.
Dividend Investing
Established companies in the semiconductor industry that are expanding into advanced packaging may offer stable dividends. Investors looking for steady income in addition to capital appreciation can explore these options. These companies, owing to their mature position in the market, are more likely to distribute regular dividends.
Dividend investing targets companies that regularly distribute a portion of their earnings to shareholders as dividends.
Thematic Investing
Investors can focus on the broader theme of semiconductor advancement and national security. This could involve investing in a basket of companies that are directly or indirectly involved in the U.S. initiative to bolster semiconductor production and advanced packaging. This includes companies across various segments like manufacturing, equipment suppliers, R&D firms, and even companies involved in the raw materials for semiconductor packaging.
Thematic investing selects assets based on projected trends or themes believed to offer growth opportunities.
ESG Investing
Given the strategic importance of semiconductor technology in sustainable development and national security, investing in companies with strong environmental, social, and governance (ESG) practices in this sector could be a prudent approach. These companies are likely to align with broader sustainability goals and might receive favorable policy support.
Companies Involved in Semiconductor Manufacturing
Several publicly listed companies are actively involved in advanced packaging, semiconductor production, or related supply chains. These companies represent a cross-section of the industry, from those directly manufacturing semiconductors to those supplying critical components and technologies. Key players include:
Intel Corporation (NASDAQ: INTC): A leader in semiconductor manufacturing, Intel is heavily invested in advanced packaging technologies.
Taiwan Semiconductor Manufacturing Company (TSMC) (NYSE: TSM): The world's largest dedicated independent semiconductor foundry, TSMC is at the forefront of advanced packaging technologies.
NVIDIA Corporation (NASDAQ: NVDA): Known for its graphics processing units (GPUs), NVIDIA is also involved in semiconductor technology, benefiting from advancements in packaging.
Advanced Micro Devices, Inc. (NASDAQ: AMD): AMD, a major player in the semiconductor sector, leverages advanced packaging for its CPUs and GPUs.
Applied Materials, Inc. (NASDAQ: AMAT): A leading provider of equipment, services, and software to the semiconductor industry.
ASML Holding NV (NASDAQ: ASML): A Dutch company specializing in photolithography systems used in semiconductor manufacturing, essential for advanced chip production.
Micron Technology, Inc. (NASDAQ: MU): Engaged in semiconductor systems, Micron's products are used in advanced memory and storage technologies.
Lam Research Corporation (NASDAQ: LRCX): Provides equipment and services for semiconductor manufacturing, playing a crucial role in the supply chain.
Qualcomm Incorporated (NASDAQ: QCOM): Specializes in semiconductor and telecommunications equipment, including advanced chips for mobile devices.
Texas Instruments Incorporated (NASDAQ: TXN): Known for designing and manufacturing semiconductors and various integrated circuits.
Samsung Electronics Co., Ltd. (005930.KS): A major player in the semiconductor industry, Samsung is heavily involved in advanced chip manufacturing and packaging.
SK Hynix Inc. (000660.KS): A South Korean semiconductor company specializing in memory and storage technology.
Read What Others Are Saying
Bloomberg: A New Front Is Opening Up in the US-China Conflict Over Chips
Reuters: China receives US equipment to make advanced chips despite new rules
CNBC: Huawei is giving Apple stiff competition in China
What you should read next:
Relevant ETFs
For those seeking diversified exposure without directly investing in individual stocks, ETFs and mutual funds focused on semiconductors or technology provide a more balanced approach. Some funds might specifically target areas like advanced manufacturing technologies, including semiconductor packaging, offering a mix of growth and value opportunities.
iShares Semiconductor ETF (SOXX)
Invesco PHLX Semiconductor ETF (SOXQ)
VanEck Semiconductor ETF (SMH)
Columbia Seligman Semiconductor and Technology ETF (SEMI)
Direxion Daily Semiconductor Bear 3X Shares (SOXS)
Invesco VanEck Semiconductor UCITS ETF USD A
iShares MSCI Global Semiconductors UCITS ETF USD A
Global X Semiconductor ETF (SOCL)
Strive US Semiconductor ETF
SPDR S&P Semiconductor ETF (XSD)
ProShares UltraShort Semiconductors (SSG)
ProShares Ultra Semiconductors (USD)
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