• 349 days Will The ECB Continue To Hike Rates?
  • 349 days Forbes: Aramco Remains Largest Company In The Middle East
  • 351 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 751 days Could Crypto Overtake Traditional Investment?
  • 756 days Americans Still Quitting Jobs At Record Pace
  • 758 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 761 days Is The Dollar Too Strong?
  • 761 days Big Tech Disappoints Investors on Earnings Calls
  • 762 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 764 days China Is Quietly Trying To Distance Itself From Russia
  • 764 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 768 days Crypto Investors Won Big In 2021
  • 768 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 769 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 771 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 772 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 775 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 776 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 776 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 778 days Are NFTs About To Take Over Gaming?
  1. Home
  2. Investing
  3. Stocks

As Auto Giants Flail, Look To Chip Stocks For Gains

As Auto Giants Flail, Look To Chip Stocks For Gains

Hopes and positive expectations for larger vehicle inventories and lower prices for this summer are now dimming as a prolonged semiconductor chip shortage has caused several major car manufacturers to cut production. 

GM announced it would pause production at eight of its 15 North American assembly plants during the next two weeks due to the chip shortage.

Ford also said it will stop making pickups at its two plants and will be cutting shifts in two more for the next two weeks.

The two U.S. auto giants follow Nissan, Volkswagen, Toyota, Mazda and Subaru in cutting production over chips that are crucial components that make computer-controlled systems in cars work, with electronics accounting for about 40% of a vehicle’s value.

Industry executives now fear that chip shortage could continue into 2022 and even 2023, which means that consumers will continue to pay record-high consumer prices for vehicles, both new and used, in that period.

Kelley Blue Book data shows that while the new vehicle sales in August in the U.S. fell nearly 18% due to chip shortage, the average transaction, at $42,736, was 8% higher than one year ago.

According to new research from IHS Markit, the chip shortage will result in 700,000 fewer vehicles produced globally this quarter. As for the lost revenue due to that, Bloomberg reported it could amount to $61 billion by the end of the year.

With economies reopening and the vaccination process launched back in the spring, car manufacturers (and customers) hoped that a shortage of computer chips that had sent car prices soaring would ease. However, that hasn’t been the case.

Surge in COVID-19 cases from the delta variant in the past few weeks in several Asian countries that are the main producers of auto-grade chips is worsening the supply shortage. 

Earlier this year more than a dozen senators called on the Biden administration to support additional funding to expand chip production in the U.S. Back in February, President Biden said domestic semiconductor manufacturing was a priority for his administration. He also signed an executive order meant to address the global chip shortage. In June, the Senate approved the U.S. Innovation and Competition Act (USICA) aimed to boost US competitiveness with China. The would provide $52 billion to fund semiconductor research, design, and manufacturing initiatives.

For investors, it means it’s time to reconsider those chip stocks, and it’s not too late to get in on this game. Even if we do see an uptick in chip production, it will take a fair amount of time to clear the backlog because this supply chain is way behind.

Earlier this week, Intel announced a $95 billion investment in Europe for new chip-making factories. And this spring, it said it would spend $20 billion to build two separate chip factories at its facility in Chandler, Arizona to challenge Asian dominance. Intel (NASDAQ:INTC) stock spiked in April but YTD its gains have been a more modest 8%. 

Nvidia (NASDAQ:NVDA), on the other hand, has gained nearly 73% so far this year, massively rewarding investors who stuck with this one through COVID. 

Advanced Micro Devices Inc (NASDAQ:AMD) has gained over 18% YTD, and Analog Devices (NASDAQ:ADI) has advanced nearly 12%.

Back to homepage

Leave a comment

Leave a comment