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CHIPS Act delay ‘really frustrating’ for tech companies, analyst says

Futurum Research Principal Analyst Daniel Newman joins Yahoo Finance Live to discuss how semiconductor stocks are performing amid supply chain shortages and inflation as well as the outlook for the tech sector.

Video Transcript

JARED BLIKRE: Welcome back. Chip stocks are in focus today after both Samsung and now Taiwan Semiconductor proved upbeat earnings. And that's with Taiwan Semi seeing sales spike 44%, spurring a rise in the semiconductor space. And joining us now to discuss is Futurum Research principal analyst Daniel Newman.

Daniel, thank you for joining us today. I got to get your take on the latest regarding the CHIPS Act. We have-- it's nice to talk about these companies that are reporting increased growth. But this is an act that has stalled in Congress right now that is supposed to provide up to $50 billion, I believe-- don't quote me there-- in relief. Not relief, but in capital intensive efforts to help bring fabrication back to the US. So your thoughts on this?

DANIEL NEWMAN: Yeah, I think this is a really important act. And it's really frustrating to see something that's bipartisan that's largely supported struggle to get reconciled and get passed and put into law. You look at some of the basics. There's something like 40 projects in China to increase production of semiconductors, maybe 20 or so in Taiwan, and only about five scheduled here in the US. You're seeing China increase its tooling investment.

And everywhere else in the world, we're spending less. And we have now almost 100% of all the leading edge semiconductors manufactured over there. That's a issue for national security. That's an issue for global technology leadership. And of course, our fragile supply chain is continually at risk by not having more diversity in how and where our chips are manufactured. So getting this passed is a starting point.

But it's a really important one. And it's really frustrating, like I said, sitting here, watching us not being able to pass even bipartisan supported bills. It's just-- it's really unfortunate. And it's something I'm hoping to see in this next quarter, hopefully ahead of midterms, getting passed into law so Intel can break ground on that Columbus, Ohio mega fab.

JARED BLIKRE: Well, let's follow up on that because that was-- that's a $100 billion project. I think they committed something like $20 billion to it. And there's already resources that have been spent on this. None of this was-- the current economic condition that we're in with high inflation was largely not compensated a year ago. But why are we at this point right now? Do companies in the US simply not have the capital that's necessary to bring these plants back home?

DANIEL NEWMAN: Well, I think around the world, these are public-private partnerships. There is subsidy from the government because they understand the importance of technology leadership. They understand the importance of national security. The types of wars we're fighting are information wars right now. And the position of the US as the global leader in innovation and technology is dependent on semiconductors.

All this cloud technology, AI, all the things that we talk about, they're all dependent on being able to run on the leading edge technologies that are developed by many of our fabulous semiconductor manufacturers and semiconductor companies, the NVIDIAs, the Qualcomms. These companies are manufacturing in Taiwan, but we want to make sure that the innovation stays here, which is part of the CHIPS Act. It's not just manufacturing. It's the investment in R&D, and it's the investment in leadership.

So I think public-private is going to be critical for deals of this scale, because we also have to make sure that we continue to buy here, hire here, and invest here. In the past, with the way we've offshored and outsourced, that hasn't necessarily stayed here even when we still had the capacity.

JARED BLIKRE: Well, let me ask you, then. Do we have a university system, a tech school system that is, I guess, robust enough to produce all the people that we need to work in this industry? And if not, what is on the immigration front, I guess?

DANIEL NEWMAN: Yeah, you know, I'm not a policy on the immigration side, so I don't want to weigh in too heavily there. But I think that's been the great question. We need a policy that enables us to bring in the right types of workers on visas.

And then, of course, we need systems here that we are encouraging STEM education, we are encouraging to bring the right innovators, engineers, technologists, scientists to come to work. That's one of the concerns about these mega fabs. How are we going to find the people that work in them? Because there's not a high volume. It's just the incredible specialty and knowledge and education required for them to lead these efforts.

JARED BLIKRE: Yeah, let me switch gears a little bit. I kind of led with the Taiwan semi news, also the Samsung news. I'm looking at our YFi Interactive here. This is our semiconductor heat map. On a year to date basis, it's shocking to see some of the losses here. Of course, this is a very cyclical sector that is highly geared and levered towards the business cycle. But what are you making of some of these latest announcements? And how does this color your view with some of the stocks you might like?

DANIEL NEWMAN: Yeah, I've continued to say that semiconductors will eat the world. And I think we've seen a natural pullback that has come from the sentiment, the market, the frowning on growth, and of course, the inflation, interest rates, and uncertainty related to the war, all the factors that baked in a major pullback in tech.

So I think you're going to kind of have the haves and have not situation. I think some of the discretionary secular consumer, we're seeing it in the data from Micron and Samsung. Things like handheld devices, some of the consumer PCs and other electronics, maybe even some cars, we're going to see a bit of pullback, which could create a little bit of a headwind for some of the semiconductor companies.

But in the enterprise side, data center, AI, intelligence, cloud scale, all that type of technology I think we're going to see growth. In fact, growth is going to be critical for us to make it through, whether it's updating our supply chains, whether it's building next generation cybersecurity, implementing AI and analytics that can automate businesses. We're going to need to spend more in the cloud, more on data centers, more on storage. These things are all going to be required.

So I'm pretty optimistic on that side. And that's actually what the numbers have been showing, some weakness in consumer, some strength in the enterprise. But over the long run, you look at some of these prices, and you say there's a lot of value here.

JARED BLIKRE: Well, let's talk about some names here. Any in particular that you'd like to share with us?

DANIEL NEWMAN: Yeah, I've got a couple that I really think are strong. One is Qualcomm. They've had a tremendous diversification of revenue into areas like automotive, IoT. But of course, the company is also leading at the premium tier on the handsets. And the premium tier tends to be less sensitive. And I think we'll see that with Apple. And the TFMC numbers indicated that Apple might do quite well.

I also really like how the company has just been able to diversify and push margins and get a lot of its revenue off of just that dependency on handsets. Nvidia, I'm really optimistic about. And I'll put Marvell in the same category with the cloud scale data center AI play. Those two companies, I mean, Marvell has done nothing but grow. Huge, significant growth in data center, cloud, Edge, 5G. These are all big secular trends.

And Nvidia has a heads and tails lead in the AI space. Now, there are other companies that are trying to compete there. But if you look at the data center growth, it's actually surpassed the company's gaming business. So while there's some risk in gaming with the potential consumer pullback with GPUs, with crypto pullback, there's very little risk on the enterprise side because companies are all going to be investing in machine learning and AI. And those things are going to have to be done if companies want to be able to scale out and take advantage of all the data that we're creating every day.

JARED BLIKRE: Yeah, pretty interesting to think that the first day of this year, the S&P 500 notched a record high. And now we're talking about semiconductors being a value play. I've got to leave it right there, but thank you for your insights here, Daniel Newman, Futurum Research principal analyst. Coming up next, former Theranos exec Sunny Balwani found--