After the past couple of years, it’s safe to say we’re used to unusual events. But one stood out to me in particular.
I have a friend who works at an auto dealership. Recently, his manager asked all employees to avoid the usual employee lot and park their cars close to the dealership’s main entry instead.
The dealership didn’t have enough cars on hand to fill in the lot. His manager was worried that prospective buyers would think the place was closed!
Welcome to the great semiconductor shortage of 2021.
New cars are in short supply because automakers are having an awful time finding the chips needed to finish building them.
It’s not a lack of demand that is crimping auto sales. Americans are flush with cash and ready to spend. But the automakers can’t deliver the goods because the parts they need haven’t been made.
And it’s not just cars. Earlier this year, Goldman Sachs identified 169 industries facing major disruption due to the global chip shortage. You’ll find unsurprising businesses, such as appliance manufacturing and mobile phones. But the list also included low-tech sectors like ready-mix cement, aluminum smelting and even beer breweries.
In our high-tech economy, chips go into everything.
How Did We Get Here?
This isn’t how capitalism is supposed to work. We get what we want when we want it. And the market delivers!
Yet, here we are. And it was a strange conflation of events that got us here.
It started with the COVID-19 pandemic, of course. When the world went under lockdown in early 2020, production slowed or halted completely for weeks or even months in some cases. Yet demand never slowed. In fact, demand jumped, as folks stuck at home opted to upgrade their phones, laptops, TVs and other electronics.
With demand exploding and supply curtailed, inventory was depleted quickly. Chipmakers have been scrambling to catch up ever since.
If that wasn’t enough, the trade spat between the U.S. and China added fuel to the fire. In September 2020, the U.S. put major restrictions on China’s Semiconductor Manufacturing International Corporation. It left U.S. buyers scrambling to find replacements in South Korea and Taiwan.
And then the cherry on top of the sundae was an act of God.
Right when the world needed Taiwan to massively ramp up production, the country was hit with its worst drought in decades, which created major disruptions. Chipmaking uses a lot of water. Taiwan had to go as far as building desalination plants and water pipelines to keep production going.
Small wonder that the chip shortage doesn’t seem to be abating any time soon!
How to Play the Semiconductor Trend
If you’re looking to play this investment theme, you could buy shares in the individual chipmakers and you’d likely do well. As a case in point, Taiwan Semiconductor (NYSE: TSM) rates well on my quality (93), growth (84) and volatility (80) factors of my proprietary Green Zone Ratings system.
But I’ve identified a better way to play this stock trend. In the September issue of Green Zone Fortunes, I am recommending a specialized equipment maker that supplies the semiconductor makers. And this company is instrumental in an up-and-coming display technology that will continue to boost growth long after this current chip shortage is resolved.
To find out more you can join my Green Zone Fortunes premium stock recommendation service today. Be one of the first to learn about this company when the September issue of my newsletter hits email inboxes in the coming days.
And semiconductors aren’t the only stock trend we are tracking in Green Zone Fortunes. In fact, a technology I call “Imperium” is set to disrupt global industries worth a total of $64 trillion in the coming years, and there’s still time to buy into the company behind this technology now. Click here to watch my presentation, and find the details on how to join us in Green Zone Fortunes today. You don’t want to miss this!
To good profits,
Chief investment strategist, Money & Markets