What ranks fourth on the list of the world’s most-traded products, behind crude oil, refined oil and cars?
I’ll give you a hint — these products are the tiny “engines” that help run everything from home appliances and personal computers to 5G-enabled smart phones, cloud internet servers and autonomous vehicles.
If you guessed semiconductors, you’d be correct!
They are the lifeblood of the modern, electronics-driven economy. And they’re in serious short supply at the moment.
Over a year ago, the pandemic and resulting economic downturn derailed global supply chains and caught the semiconductor industry off guard. It had been focusing on producing the more profitable, advanced chips that go in 5G technologies. As consumer demand suddenly rocketed for electronics that needed the older chips, the shortage began to take hold.
The trade dispute between China and the U.S. that flared up last year caused Chinese chip makers to hoard supplies, exacerbating the shortage. Then bad weather in the southern U.S. and Taiwan, one of the world’s biggest chip producers, disrupted supplies further.
Interestingly, even hi-tech gadgets like 5G smartphones also rely on these less advanced chips — especially power-management chips — to operate.
Some customers are reporting they have to wait six months or longer to get their normal shipments. Here are a few examples…
Microsoft Corporation (MSFT) reported in its earnings announcements on Tuesday that its hardware sales were impacted by the chip shortages.
The chip supply crunch has hit the auto industry hard, particularly for the older, less sophisticated chips that are used in cars, computer monitors, speakers and appliances.
General Motors (GM) has had to reduce production of almost all of its car and SUV models to prioritize chip supply for its more profitable full-size trucks, and has even built some pickup models without the chips and is storing them until the supply returns and chips can be incorporated.
Volkswagen AG (VWAGY) has about 100,000 fewer vehicles on hand in 2021 because the shortage has hampered production, and is expecting the trend to worsen in the second quarter.
Tesla, Inc.’s (TSLA) CEO Elon Musk said on Monday during the company’s earnings call that the shortage is a “huge problem,” despite measures the company is taking to use new microcontrollers and firmware.
The consulting firm AlixPartners has estimated the global auto industry will produce from 1.5 million to 5 million fewer automobiles this year than expected.
Now even the government is stepping in to help. President Biden recently met with industry executives about the issue and has called for $50 billion of his proposed $2.3 trillion infrastructure plan to support the chip industry in the U.S.
Meanwhile, some of the best chipmakers in the industry are scheduling massive capital expenditures to help meet the growing demand in the coming years.
I’m talking about the kind of fundamentally superior stocks I look for to grow earnings and sales.
Case in point: The world’s largest contract chip maker, Taiwan Semiconductor Manufacturing Co. (TSM). I recommended the stock to my Growth Investor subscribers back in November 2020.
The company said this month it would set aside a whopping $100 billion over the next three years to increase capacity. That represents the largest sum ever invested in the industry.
The strong demand for semiconductors has certainly lifted the company’s top and bottom lines during the first quarter of fiscal year 2021.
In U.S. dollar terms, first-quarter earnings were $4.93 billion, and revenue was $12.92 billion. First-quarter earnings per ADR jumped 28% year-over-year to $0.96. The consensus estimate called for earnings of $0.95 per ADR and revenue of $12.86 billion, so TSM posted a 1.05% earnings surprise and a slight revenue surprise.
Looking ahead to the second quarter, TSM expects total revenue between $12.9 billion and $13.2 billion. That represents 24.3% to 27.2% year-over-year revenue growth—and the forecast is in line with analysts’ current estimates for $13.15 billion.
The stock earns an “A” in my Portfolio Grader for its Total Grade and is currently a “Strong Buy.”
Or take another leading semiconductor stock I recommended to my Growth Investor subscribers in October 2020.
This company recently reported a huge, triple-digit first-quarter earnings surprise, while its sales growth also beat out analysts’ estimates for the quarter.
This chip leader noted it experienced “robust wafer demand” during the first quarter, particularly for products like digital TVs, set top boxes and connectivity chips for smartphones.
Looking ahead, the company expects demand will continue to outpace supply for its products and has decided to invest about $5 billion over the next three years in expanding its fabrication capacity in a partnership model with several leading global customers.
The stock has gained about 18% year-to-date, more than double the NASDAQ’s 8.7% gain.
The company is also a “Strong Buy” in my Portfolio Grader, with a Total Grade and Quantitative Grade of “A.”
The reality is you really couldn’t pick a better time. First, I’m releasing my Growth Investor May Monthly Issue today, which will include seven new recommendations – five new High-Growth Investments and two Elite Dividend Payers. They are all leaders in their respective industries and have plenty of upside potential.
Second, there’s a great divide opening up in America, and investing in my Growth Investor stocks will help get you on the right side of it. You see, on one side is a new aristocracy that’s amassing more wealth, more quickly than any other group in American history. For people like me, the one percent, life has never been better, more prosperous.
On the other side, the opposite is happening. Wealth is flowing out of the pockets of ordinary Americans at an unprecedented rate.
What’s happening is only going to gather in strength over the coming decades. It certainly won’t weaken.
Few Americans even know that any of this is going on. I’ve never seen anyone from my side of the chasm step forward to explain any of these things.
It’s why I put together this video. In it, I’ll lay out exactly what is happening, including several key steps every American should take right now.
It doesn’t matter if you have $500 in savings or $5 million. You can benefit from the information in this video.
It’s free to watch and by doing so I know you’ll be ahead of everyone else struggling to understand what is really going on.
The Editor (Louis Navellier) hereby discloses that as of the date of this email, the Editor (Louis Navellier), directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Microsoft Corporation (MSFT), Taiwan Semiconductor Manufacturing Co. (TSM)