The U.S. government has focused significantly on the country’s position in the semiconductor market, and it’s no surprise: chips play a vital role in many industries, from automobiles to smartphones and more. by computers and artificial intelligence (AI).
A key effort: The CHIPS and Science Act, signed into law in 2022, accelerated investment in the U.S. semiconductor industry. Under the program, the U.S. government provided nearly $30 billion in grants and $25 billion in loans to seven companies. Thanks to these massive investments, semiconductor manufacturing capacity in the United States is expected to triple by 2032, with an estimated growth of 203% in less than a decade, according to a report from the Semiconductor Industry Association and the Boston Consulting Group.
Let’s take a closer look at two semiconductor companies who are beneficiaries of the CHIPS Act. Both have already received aid from the U.S. government, are growing at breakneck speed, and could deliver huge gains by 2032 that could match rising U.S. spending on semiconductors.
1. Micron technology
On April 25, Micron technology (NASDAQ:MU) has entered into preliminary terms with the U.S. government for proposed $6.1 billion in CHIPS Act funding, as well as proposed loans of up to $7.5 billion. The memory specialist says the grant will support its investment plans worth $50 billion to build advanced chips in the United States through 2030.
This enhanced production capacity will provide a significant boost to Micron’s long-term growth, allowing it to capture a greater share of the market in which it operates. Micron was the third largest supplier of dynamic random access memory (DRAM) chips last year, with a 23% share.
It is worth noting that Micron is experiencing strong demand for its DRAM chips thanks to AI. For example, during the March earnings conference call, management noted that Micron had exhausted its high-bandwidth memory (HBM) capacity for 2024. Micron also added that “the overwhelming majority of our supply for 2025 has already been allocated.”
This is not surprising: demand for HBM is expected to triple this year due to its deployment in AI chips such as Nvidia and others. HBM’s demand is expected to double again next year and could see annual growth of 68% through 2030. Meanwhile, the overall memory market is expected to generate $338 billion in annual revenue in 2032, up from $134 billion in 2023, according to Credence Research. .
Thus, Micron’s higher production capacity, thanks to favorable conditions in the US semiconductor industry, is expected to pave the way for long-term growth. The good thing is that Micron is already experiencing rapid growth thanks to exceptional end market demand. As the following chart indicates, its earnings are expected to take off after a loss of $4.45 per share in the prior fiscal year.
Assuming Micron achieves earnings of $10.16 per share over the course of a few fiscal years and trades at 30 times earnings, consistent with Nasdaq-100The earnings multiple of (using the index as a proxy for tech stocks), its stock price could rise to $305 per share. That would be 2.5 times its current stock price. Additionally, the long-term growth opportunity in the memory market and the company’s focus on improving its capacity could help it generate more upside potential in the future, and the The stock could even triple in the long term.
With Micron currently trading at 17 times forward earnings, investors are currently getting a good deal on this semiconductor stock and should consider taking advantage of its cheap valuation. It appears built for impressive long-term growth.
2. Taiwan Semiconductor Manufacturing Company
Taiwan semiconductor manufacturing company (NYSE:TSM), popularly known as TSMC, is another beneficiary of the CHIPS Act. Last month, the U.S. Commerce Department proposed $6.6 billion in direct financing and an additional $5 billion in loans to the foundry giant to support its expansion in the United States. The company has already completed its first manufacturing plant in the United States and is currently building another. . And now, TSMC will add a third manufacturing plant in Arizona.
This new factory will bring TSMC’s total investment in U.S. semiconductor manufacturing in Arizona to $65 billion. TSMC says it decided to build a third factory to “meet strong customer demand by leveraging the most advanced semiconductor processing technology in the United States.” TSMC management said during the April earnings conference call that it plans to devote 70% to 80% of its $28 billion to $32 billion capital budget for 2024 on advanced process technologies.
These advanced processes refer to chips made on nodes 7 nanometers (nm) or smaller, and their demand has increased significantly over the past year thanks to AI. TSMC customers, such as Nvidia, AMD, IntelAnd Appleuse process nodes of 5nm or less in their AI chips and AI-focused products such as MacBooks.
Additionally, this strong customer base has made TSMC the world’s leading foundry with a 61% market share, according to Counterpoint Research. This gives the company a head start Samsung, the second largest foundry in the world with a 14% share. This dominant market share means TSMC is in a strong position to capitalize on the overall growth of the semiconductor market.
Precedence Research predicts that the semiconductor market could be worth an estimated $1.9 trillion in 2032, up from $664 billion last year. Simply put, the global semiconductor market could triple in less than a decade, and TSMC could see solid business growth by expanding its manufacturing capacity and capturing a greater share of it.
Analysts expect TSMC’s profits to grow at an annual rate of 21% over the next five years. Assuming it can maintain annual earnings growth of even 15% over the next decade, its bottom line could climb to as much as $25 per share. TSMC has an average earnings multiple of 21 over five years, and a similar multiple after a decade (hypothetically – all else being equal) could push its stock price to $525 based on projected earnings here. -above.
That would be more than three times the current stock price, suggesting that investors looking to profit from the revolution in the U.S. semiconductor industry would do well to buy TSMC stock for the long term.
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Hard Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Advanced Micro Devices, Apple, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short May 2024 $47 calls on Intel. The Mad Motley has a disclosure policy.
US chip manufacturing could triple in less than a decade: 2 stocks that could follow suit was originally published by The Motley Fool
