The global semiconductor industry was worth $575 billion in 2022. By 2029 – a mere six years from now – that number is expected to hit almost $1.4 trillion. And that is before even truly accounting for the potential exponential growth in AI – which McKinsey estimates will account for 20% of all semiconductor demand by 2025.
Beyond just the long-term potential of the semiconductor industry however, there are plenty of shorter-term opportunities investors can exploit.
One is the persistent semiconductor shortage. While the supply chain situation has greatly improved compared to a couple years ago – particularly for the auto industry – increasing demands for automations and EVs are still straining capacity. Then, there’s the ongoing “chip war” – which has massive geopolitical implications.
Today’s daily stock pick is one that has found a unique niche in an industry where only a few big names dominate. It also stands to benefit from the “chip war” and the semiconductor shortage – even as the situation improves.
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GLOBALFOUNDRIES, Inc. (GFS)
GFS was originally the chip-manufacturing arm of AMD before being spun off as a private company. It then spent a few years being owned by the sovereign wealth fund of the United Arab Emirates before going public in October 2021.
Today, GFS is in the world’s top five largest semiconductor manufacturers, which is impressive considering the company only focuses on something called “mature node” manufacturing. These are older chips used in industrial markets where reliability and replaceability is more important than super-high computational ability.
This niche focus not only allows GFS to avoid going head-to-head with names like Taiwan Semiconductor Manufacturing. But it also allows GFS to benefit a little longer from the shortage – which is more persistent in the mature market.
GFS is also a potential beneficiary of the United States’ CHIPS Act – which provides $52 billion in funding for domestic semiconductors. GFS is rated as a “Trusted Foundry” for the US federal government and thus is a high-potential recipient for some of this funding.
Finally, GFS also posted record revenue and net income for FY 2022. With its first-quarter earnings set to be released next Tuesday on May 9, now may be the time to get positioned in this stock.
To your wealth,
Felix @ Ace of Investing