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The semiconductor market is set to go into overdrive with the CHIPS Act. The U.S. government recently established the final guidelines for the funding rules of the 2022 law to limit the use of funding grants for manufacturing from nations like China and Russia. This is to help deter U.S. funding from helping boost semiconductor companies related to countries the U.S. sees as high risk.
What is the CHIPS Act?
The CHIPS and SCIENCE Act, sometimes called the CHIPS Act, is a law signed August 9, 2022, by the Biden Administration to help boost US competitiveness, innovation, and national security by catalyzing investments in the domestic semiconductor industry. This CHIPS Act is set to direct $280 billion of spending in the next ten years for R&D workforce development and tax credits for chip production. These three companies are some of the domestic semiconductor players that will significantly benefit from this government funding.
Intel Corporation (INTC)
Intel Corporation is a semiconductor company best known for developing processors for personal computers. Most tech enthusiasts would know its Core Processors, one of the biggest names in the CPU processing industry. The company has also recently entered the GPU (Graphics processing unit) market with its Intel® Arc™ Graphics and is set to battle it out on market share with NVIDIA and AMD. INTC also operates in segments like Accelerated Computing Systems and Graphics (AXG), Network and Edge, Data Center and AI, Mobile Eye, and Intel Foundry Services.
Intel announced in its webinar some details about its Intel Foundry Model; according to the company, it is projecting increased efficiencies in its processes to drive greater profitability and pursuing its long-term goal of achieving non-GAAP gross margins of 60%. INTC has also confirmed that its 14th-generation processors, “Meteor Lake,” are coming in 2023 and 2024. Initially announced as mobile processors, Meteor Lake’s desktop version was recently announced for a 2024 release. The company has also previously partnered with MediaTek to use its foundry to develop smart edge devices, which makes its foundry services one of the key beneficiaries of the CHIPS Act.
Analyst Ratings
Analysts rate INTC as a “Hold” based on its 3 Strong Buys, 2 Moderate Buys, 21 Holds, 1 Moderate Sell, and 3 Strong Sells. The mean target price is $35.05, and the high target price is $46.00, representing an upside of 35.97%.
Applied Materials, Inc. (AMAT)
Applied Materials, Inc. is an equipment, services, and software manufacturer for the semiconductor industry and is best known as the global leader in nanomanufacturing technology solutions. Its operations focus on three segments: Display and Adjacent Markets, which manufacture OLED displays for different electronics; Applied Global Services for integrated solutions in factory automation and productivity in semiconductor and solar products; and lastly, its Semiconductor Systems, which specializes in semiconductor fabrication of chips with capital equipment.
AMAT previously launched a multi-billion dollar research and development platform to speed up the company’s semiconductor research innovation. This dedicated space aims to provide early access to next-gen equipment and processes and shorten roadmap timelines. The company has also had exceptional financial performance; its latest quarter’s EPS was 9.83% higher than analyst expectations. While its revenue was lower by 1% YoY, Applied Materials is still a leader in the space and is bound to take advantage of the CHIPS Act implementation.
Analyst Ratings
AMAT is rated as a “Moderate Buy” by analysts based on 15 Strong Buys, 9 Holds, and 1 Strong Sell. The mean target price is $155.14, and the high price is $185.00, an upside of 37.98% based on the last trading price of $134.08.
Texas Instruments Incorporated (TXN)
Texas Instruments Incorporated is an original equipment manufacturer of analog and embedded semiconductors for major manufacturers and companies worldwide. This includes companies like Apple, Dell, and Hewlett-Packard. TXN operates in two segments. First is its analog for electronic systems management, including regulators, controllers, and converters. Its embedded processing segment, meanwhile, focuses on microcontrollers, applications processors, and DSP(digital signal processors).
The company has been intensifying its R&D and SG&A investments, spending 3.6 $billion in the last 12 months on both. The CHIPS Act subsidies will provide Texas Instruments with sizable capital to improve research and development further. TXN is beating analyst expectations left and right. Its current EPS, $1.87, exceeded forecasts by 6.25%. Sales also grew by 3.47% from the previous quarter.
Analyst Ratings
Analysts rate Texas Instruments as a “Moderate Buy” based on 8 Strong Buys, 14 Holds, and 2 Strong Sells. TXN’s mean target price is $188.75, and the high target price is $230.00, a 45.61% increase from last trading price.
Final Thoughts
While government support and funding are significant catalysts for growth in most companies, it is exciting to look at the semiconductor space and see who will benefit most from these investments. The only question now is, which company will be able to maximize this funding efficiently?
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
