The consulting group Bain & Company recently released a comprehensive report on the state of technology, highlighting the possibility of a chip shortage in the near future. This potential shortage is attributed to the increasing demand for semiconductors required for the current artificial intelligence (AI) infrastructure buildout, as well as the anticipated surge in smartphone and PC upgrades.
Large tech companies involved in the AI infrastructure expansion have emphasized the exponential need for more computing power from AI models. This, coupled with the necessity for more powerful smartphones and PCs to support AI applications, indicates a significant increase in chip demand on the horizon. However, expanding chip manufacturing capacity is a time-consuming process that can take years to establish a new foundry.
Considering these factors, the prediction of a potential chip shortage does not seem far-fetched. Let’s explore three stocks that could potentially benefit from a chip shortage:
Nvidia:
Nvidia’s graphic processing units (GPUs) are highly sought after in the semiconductor market, particularly for AI model training and inference in data centers. The company holds over 80% market share in the GPU space and has established a strong position through its CUDA software platform. Moreover, Nvidia has accelerated its GPU development cycle to remain technologically advanced. In the event of a chip shortage, Nvidia’s chips would likely be in high demand, further solidifying the company’s market position.
Taiwan Semiconductor Manufacturer (TSM):
As the largest semiconductor manufacturer globally, TSMC produces a significant volume of chips. A chip shortage would indicate strong demand for TSMC’s services, potentially leading to full capacity utilization at its foundries. The company’s high fixed-cost business model relies on high demand and capacity utilization to maintain margins. TSMC has been increasing prices for its newer chip manufacturing processes and is expected to raise prices further next year. Additionally, TSMC is expanding its manufacturing capacity by building new fabs in various countries to meet the growing demand for chips.
ASML:
ASML, a Netherlands-based company, is a leader in semiconductor manufacturing equipment. In the event of a chip shortage, chip manufacturers would need to increase their capacity, requiring more equipment from companies like ASML. The company recently introduced a new high numerical aperture extreme ultraviolet lithography system to enhance chip manufacturing productivity and reduce production costs. ASML anticipates an industry upturn in 2025, and a chip shortage would likely drive increased demand for its equipment.
In conclusion, the potential chip shortage predicted by Bain & Company could create opportunities for companies like Nvidia, TSMC, and ASML to thrive. These companies are well-positioned to benefit from increased chip demand and potential pricing power in a tight supply and demand environment. Moreover, their attractive valuations make them compelling investment options for investors looking to capitalize on the semiconductor market’s growth.
