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Why GlobalFoundries, Micron Technology, and Applied Materials Soar Today

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what happened

Market share of semiconductor-related companies global foundries (GFS 11.89%), micron technology (Mu 4.37%)When Applied Materials (Amat 4.60%) As of 2:31 PM ET, they are up 12%, 4.3%, and 4.7% respectively.

None of these stocks had any company-specific news today, but GlobalFoundries in particular had news earlier in the week. But broader optimism over the path of inflation, the passage of the CHIPS Act earlier this week, and the possibility of today’s passage by the House of Representatives of the Inflation Reduction Act could all boost the rally in these stocks.

Additionally, the article appleof (AAPL 2.14%) Last night’s iPhone production plans may have eased fears over the battered chip sector.

So what

In conjunction with many clean energy stocks, many semiconductor stocks are expected to pass inflation-reducing legislation that will provide consumers with subsidies to purchase new or used qualified electric vehicles (EVs). is rising today in anticipation of

This may be because electric vehicles require much more semiconductor content than conventional internal combustion engines. According to GlobalFoundries’ recent Capital Markets Day presentation, Level 2 autonomous EVs require three times his semiconductor content of conventional vehicles, while Level 4 autonomous EVs require six times his amount. . With just 5% EV penetration in the U.S. and 8% worldwide, EVs could hit a tipping point for mass adoption with the help of this bill.

In that regard, GlobalFoundries produces many chips at mature backward edge nodes used in EVs, such as power semiconductors. Earlier this week, it announced the extension of its long-term supply agreement with the company. Qualcommamong others, includes Qualcomm’s automated chip platform.

The CHIPS law passed earlier this week should also help GlobalFoundries. On the heels of Tuesday’s GlobalFoundries earnings and Thursday’s Capital Markets Day for Analysts, Baird analyst Tristan Gerra reiterated his outperforming assessment of the stock at GlobalFoundries. The target price was maintained at $100, about 50% higher than today’s price.

Guerra believes the CHIPS Act will allow US-based foundries to grow their gross margins beyond their long-term targets. In this week’s capital markets presentation, GlobalFoundries outlined a goal to expand his current 27% gross margin to 40% over time.

Memory maker Micron also made two big announcements. First, the company led the decline again in the current quarter. This is because the pandemic hangover on PC continues to impact short-term performance. Management cited a wider range of destocking, citing macroeconomic concerns on the part of customers.

Micron fell on the news, but is up this week. This may be due to today’s optimism about the IRA and his signing of the CHIPS Act this week. Following the CHIPS Act, Micron announced his $40 billion investment in cutting-edge memory manufacturing in the US.

Micron is also very sensitive to the broader economy, as memory chips are like commodities and prices fluctuate based on supply and demand. Markets received some positive news on the inflation front on Wednesday, with month-on-month inflation hitting zero for the first time in a while and many economically sensitive stocks on renewed optimism for a ‘soft landing’. soared.

Meanwhile, all of these new manufacturing subsidies should go a long way toward boosting Applied Materials, the largest semiconductor equipment inventory by revenue. Shares have slumped since the beginning of the year on fears of an economic slowdown, but the CHIPS law could lead to extra investment in chip manufacturing in the short term.

Finally, to wrap up an important week, Bloomberg reported that Apple has instructed suppliers to make at least 90 million iPhone 14 units this year. That number is about the same as last year, providing a data point that demand for high-end smartphones remains resilient despite concerns about the massive decline that has plagued low-end phone brands this year. Given Apple’s size and name recognition, chip companies tend to react to Apple news, for better or worse.

so

Semiconductor stocks have had a rough start to 2022. But given how forward-looking this cyclical sector is, the combination of lower inflationary pressures and hefty manufacturing subsidies from the US government this week points to better times.

One of the rules of semiconductor investing is that if you wait to sell in a recession or buy when specific financial conditions improve, you can miss a big move in the stock price in either direction.

Billy Duberstein has held positions at Apple, Applied Materials, and Micron Technology, with the following options: a short $160 January 2023 call with Micron Technology and a $210 January 2023 call with Apple. It’s a short call. His client may own stock in the mentioned company. The Motley Fool has positions in and recommends Apple, Applied Materials and Qualcomm. The Motley Fool recommends the following options: Apple’s March 2023 $120 Long Call and Apple’s March 2023 $130 Short Call. The Motley Fool’s U.S. headquarters has a disclosure policy.