Why Intel, Qualcomm, and TSMC Stocks Soared

What’s wrong

On Wednesday morning, semiconductor investors got some good news. Bloomberg reported that the expected surge in Chinese aid to the domestic semiconductor industry may not be as big a threat as once assumed.

As of 11:35 a.m. ET, intel (INTC 3.87%) increased by 4.3% and Qualcomm (QCOM 4.53%) is up 4% and Taiwan Semiconductor Manufacturing (TSM 3.21%) Approaching 2.6%.

So what

Just weeks ago, semiconductor investors were reeling from the Chinese government’s plans in December to shower domestic semiconductor companies with $143 billion in subsidies. But Bloomberg reports today that China’s efforts to defeat US technology sanctions by building its own domestic semiconductor industry may already be on the wane.

Mr. Bloomberg said China’s past efforts to fund the problem “have yielded little so far.” This is despite the $45 billion in chip subsidies already spent on him in the last decade. And with the COVID-19 outbreak slowing the Chinese economy and curtailing its zero-coronavirus policy, the government may not be able to fund its originally planned semiconductor subsidies.

The result: New competitive threats from China and potential overproduction and a global price war on semiconductor chips are now fading.

So

There are also more silver linings for investors in Intel, Qualcomm, and TSMC from the report. Without government support, Chinese chipmakers may struggle to compete with Western chipmakers on price. Especially if the latter can take advantage of government subsidies to lower costs, and Chinese companies cannot.

Conversely, if China decides not to engage in a kind of subsidy war with the United States, there is an incentive for the governments of other countries with high-tech industries (e.g. Japan, South Korea, and European countries) to announce subsidy programs. less. one’s own.

Simply put, the prospects for avoiding a global price war on semiconductor chips are a little better today. Indeed, semiconductor companies are already dealing with demand-side semiconductor gluts that are already negatively impacting revenue and margins. But China doesn’t seem to make things worse, at least for now.

On the other hand, valuations for these stocks aren’t all that great, at 8.2x earnings estimates for Intel, 9.6x earnings for Qualcomm, and even TSMC’s 13.4x P/E ratio. Declining growth and margins. The long-term prospects for revenue growth still look pretty good (analysts are projecting 21% revenue growth for TSMC over the next five years and 23% for Qualcomm). I think most investors who buy chip stocks today are making the right decision.