Semiconductor overcapacity alert
- Adam Reynolds
- Aug 3, 2024
- 2 min read
The #USCHIPSAct, signed into law in July 2022 has spawned a global rush by governments to institute industrial policy and ensure that this vital industry is homegrown in most major economies. US, China, EU, South Korea, Japan even Australia have all reacted to the shortage of chips that occurred in 2020 with programs to subsidize construction of new semiconductor fabrication plants. See a large number of links to stories on subsidies below.
As with any commodity shortage, high prices and excess demand inevitably lead to overinvestment and excess supply. The market is only starting to clock this now and the canary in the mineshaft is Intel Corp $INTC.
Intel's poor results this week included an announcement of job cuts in an industry which has been at the heart of the AI hype over the last six months. $INTC is particularly impacted as their old school PC CPUs are being replaced by GPUs and an entirely new AI compute environment controlled by Nvidia with their high end chips and #CUDA language swiftly becoming the market standard.
Performance since March 7th when SOXX ETF split.
$NVDA Up 22.6%
$SOXX ETF Down 13.0%
$INTC Down 53.5%
Most of the move in $INTC happened in the last week, but even prior to that it has been a chronic underperformer. I expect $INTC to have severe trouble ahead and would not buy it at any price.
Even with $NVDA selling off, it remains one of the few companies that will continue to benefit from AI. Valuation may take it a lot lower still, but $NVDA will be a buy again when this current sell off runs out of steam, maybe in low 70 region, 50% off the highs. Old school semiconductor companies like $INTC, probably not worth buying for a long time yet until we see some retrenchment and consolidation in the industry.
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