The CHIPS Act & Semiconductor Stocks That Politicians Are Buying

The global semiconductor shortage has caused an enormous amount of disruption over the last two years, with nearly all major electronic goods manufacturers experiencing serious supply chain problems as a consequence of the shortage. Semiconductors lie at the heart of almost all electronic devices today, and the chip crisis has led to global delays for vehicles, smartphones, medical devices, computers, infrastructure equipment, defense equipment, and much more.

As a result of this disruption, many countries are now looking to boost domestic semiconductor manufacturing in order to reduce reliance on other countries such as Taiwan – which manufactures around 90% of the world’s advanced chips. The US,  which has been significantly impacted by the chip shortage, is one such country that is taking steps to bring chip manufacturing home. Since 1990, its global share of chip manufacturing has fallen from nearly 40% to 12%, and government officials want to change this immediately.

Chips Are Crucial to US National Security

There’s a lot at stake. In a recent blog post, the Center for Strategic & International Studies (CSIS) noted that all major US defense systems and platforms rely on semiconductors. Therefore, the lack of domestic chip production is a real threat to the country's ability to defend itself and its allies.

Compounding the problem is the fact that China has emerged as a major strategic challenger to the US, and is investing heavily in developing its military power. Its goal is to overtake the US and its allies in semiconductor technology. This is a concern for the US government, particularly now that China is looking to reclaim Taiwan. As an independent commission established by Congress recently stated: “If a potential adversary bests the United States in semiconductors over the long term or suddenly cuts off US access to cutting-edge chips entirely, it could gain the upper hand in every domain of warfare.” Ultimately, the degree of dependence on Taiwan for leading edge chips is a strategic vulnerability for the US.

The CHIPS for America Act

Recognising that semiconductors are critical to both the US economy and national security, Congress has enacted the CHIPS (Creating Helpful Incentives to Produce Semiconductors) for America Act, which proposes $52 billion in funding for local players to invest in the domestic chip industry, and has already been approved by the US Senate. Congress is also currently considering legislation called the FABS (Facilitating American-Built Semiconductors) Act, which would establish a semiconductor investment tax credit. The broad goal of these bills is to increase American competitiveness in the semiconductor space by subsidizing new investment in domestic manufacturing capacity.

This potential funding from the US government is likely to benefit a number of companies that operate in the semiconductor industry. With that in mind, we recently took a look at politician trading in the space to see where they have been buying. Here’s a look at the semiconductor stocks that have been bought by US politicians since the start of 2020, ranked by the number of different buyers.

Intel - 16 buyers

Intel is an American technology company that is headquartered in Santa Clara, California. Founded in 1968, it is the world's largest semiconductor manufacturer by revenue and remains America's largest fab operator. Intel supplies microprocessors for computer manufacturers such as Acer, Lenovo, HP, and Dell. It also manufactures motherboard chipsets, network interface controllers, integrated circuits, flash memory, graphics chips, embedded processors, and other devices related to communications and computing.

Intel looks well positioned to take advantage of any semiconductor manufacturing funding from the US government. As part of an effort to regain its position as a leading maker of semiconductors amid the global chip shortage, it is committing $20 billion to build a manufacturing mega-site in New Albany, Ohio.

Intel says it will build at least two fabrication plants on the 1,000-acre site, where it will research, develop, and manufacture cutting-edge computer chips, and employ at least 3,000 people. However, it has the option to eventually expand to 2,000 acres and up to eight fabs. Construction is set to begin in 2022 and the plant should be operational by 2025, according to the technology company.

“Our expectation is that this becomes the largest silicon manufacturing location on the planet,” said Intel CEO Pat Gelsinger earlier this year. “We helped to establish the Silicon Valley. Now we’re going to do the Silicon Heartland,” he added.

Since the start of 2020, 16 US politicians have purchased Intel stock. Those who have bought stock include: 

• Marjorie Greene (Republican)

• Ro Khanna (Democrat)*

• Thomas Carper (Democrat)

• Dwight Evans (Democrat)

• Kevin Hern (Republican)

• Earl Blumenauer (Democrat)

• Richard Blumenthal (Democrat)

• Tommy Tuberville (Republican)

• Phil Roe (Republican)

• Dean Phillips (Democrat)

• Katherine Clark (Democrat)

• Roger Marshall (Republican)

• Jerry Moran (Republican)

• Lois Frankel (Democrat)

• Ron Wyden (Democrat)

• Jon Curtis (Republican)

It’s worth noting that Intel has been one of the cheaper semiconductor stocks in recent years. And the stock still appears to offer value relative to the sector. At present, Wall Street analysts expect the semiconductor company to generate earnings per share of $3.47 this year. That puts the stock on a forward-looking price-to-earnings (P/E) ratio of around 11 at the current share price. The low valuation could help to explain why so many US politicians have bought the stock since the beginning of 2020. The average price target among analysts is currently $50, which implies potential upside of a little over 30% at current levels.

Qualcomm - 11 buyers

Qualcomm is an American multinational corporation that creates semiconductors, software, and services related to wireless technology. Its biggest individual line of business is in systems-on-a-chip (SoCs), which combine central processing with cellular connectivity, and are a vital component in Android smartphones. Over the years, Qualcomm has shifted to selling semiconductor products in a predominantly fabless manufacturing model, using the likes of Samsung and Taiwan Semiconductor Manufacturing Co (TSMC) for manufacturing. 

Qualcomm could potentially benefit from the FABS Act. Introduced in June 2021, FABS would provide a 25% investment tax credit for research and development of advanced semiconductors, which is a major expense for most American semiconductor firms. It is the largest subsidy proposed so far for chip companies that do not operate their own manufacturing plants.

At the same time, it could also potentially benefit from the CHIPS Act, even though it is not involved in manufacturing. That’s because the Department of Commerce views chip design as an essential part of the development process, and plans to support it.

"You can't divorce the design side, the innovation side, the research side, from the manufacturing side," said Deputy Secretary of Commerce Don Graves late last year. "Once the CHIPS Act gets passed, we'll be very focused on investing to make sure that part of the ecosystem is getting the investment and support that it needs," he added.

Since the start of 2020, 11 US politicians have purchased Qualcomm stock. Those who have bought stock include:

• Ro Khanna (Democrat)*

• Earl Blumenauer (Democrat)

• Zoe Lofgren (Democrat)

• Tom Suozzi (Democrat)

• Tommy Tuberville (Republican)

• Thomas Carper (Democrat)

• Marjorie Greene (Republican)

• Josh Gottheimer (Democrat)

• David McKinley (Republican)

• Michael McCaul (Republican)

• Susan Brooks (Republican)

Qualcomm is another cheap semiconductor stock. Currently, analysts expect the group to post earnings of $12.50 for the year ending September 26, 2022. That puts the stock on a forward-looking P/E ratio of 11 currently.

Broadcom - 11 buyers

Broadcom Inc. is an American designer, developer, manufacturer, and global supplier of a wide range of semiconductor products. Headquartered in San Jose, California, it creates products for the data center, networking, software, broadband, wireless, and industrial markets.

While Broadcom – which moved back to the US from Singapore in 2018 – outsources the majority of its manufacturing processes, it still has its own manufacturing plants, which are predominantly used for products utilizing its innovative and proprietary processes. In the US, its two main plants are in Fort Collins, Colorado, and Breinigsville, Pennsylvania. This means that the company could be in line to receive funding from the CHIPS Act if it makes further investments in its plants.

Since the start of 2020, 11 US politicians have purchased Broadcom stock. Those who have bought stock include:

• Ro Khanna (Democrat)*

• Diana Harshbarger (Republican)

• Virginia Foxx (Republican)

• David McKinley (Republican)

• Rob Wittman (Republican)

• John Yarmuth (Democrat)

• Ron Wyden (Democrat)

• Walter Schrader (Democrat)

• Marjorie Greene (Republican)

• Kenny Marchant (Republican)

• Phil Roe (Republican)

Texas Instruments - 8 buyers

Texas Instruments is an American technology company that designs and manufactures semiconductors and various integrated circuits, which it sells to electronics designers and manufacturers globally. Headquartered in Dallas, Texas, it is one of the top 10 semiconductor companies worldwide based on sales volume.

Texas Instruments previously operated five fabs in Texas, along with one in Maine. However, in 2020, it announced that it would be closing two of the Texas fabs – which were both more than 50 years old – and building a new 300mm wafer fab at its Richardson, Texas facility. This is expected to start production in the second half of 2022.

More recently, Texas Instruments announced that it would begin construction on new 300mm semiconductor wafer fabrication plants in Sherman, Texas, this year. This site has the potential for up to four fabs to meet demand over time. According to the company, total investment potential at the site could reach approximately $30 billion and support 3,000 direct jobs over time. Given these plans, Texas Instruments looks well positioned to receive government funding.

Since the start of 2020, eight US politicians have purchased Texas Instruments stock. Those who have bought stock include:

• Ro Khanna (Democrat)

• Kevin Hern (Republican)

• Josh Gottheimer (Democrat)

• Lois Frankel (Democrat)

• Aston McEachin (Democrat)

• Walter Schrader (Democrat)

• Phil Roe (Republican)

• David Price (Democrat)

KLA - 8 buyers

KLA Corporation is a supplier of process control and yield management solutions and services for the semiconductor industry. Based in Milpitas, California, the company offers a range of advanced inspection tools, metrology systems, and computational analytics software designed to improve manufacturing yields for a variety of standard and specialty semiconductors.

KLA could play a major role in the build out of US chip manufacturing plants as it is a leader in process control equipment – which scans wafers and semiconductors for imperfections. Its equipment, which is used by the likes of Intel, Samsung, and TSMC, is absolutely crucial to leading-edge semiconductor production. It’s worth noting here that TSMC is currently building a new $12 billion manufacturing plant in Arizona while Samsung plans to build a $17 billion plant in Texas by 2024.

It’s also worth noting that in a recent research note, analysts at Bank of America named KLA as one of the companies that is likely to benefit the most from the move to bring chip manufacturing back to the US. In the note, analyst Vivek Arya wrote that KLA has a "unique position as a key enabler of semiconductor manufacturing technology" and that the stock is set to benefit from the shift to domestic production.

Since the start of 2020, eight US politicians have purchased KLA stock. Those who have bought stock include:

• Ro Khanna (Democrat)*

• Diana Harshbarger (Republican)

• Zoe Lofgren (Democrat)

• Jon Curtis (Republican)

• Tommy Tuberville (Republican)

• Ron Wyden (Democrat)

• Gil Cisneros (Democrat)

• Phil Roe (Republican)

Applied Materials - 8 buyers

Applied Materials is an American company that supplies equipment, services and software for the manufacture of semiconductors. The company is headquartered in Santa Clara, California.

Like KLA, Applied Materials could play a key role in the reshoring of chip manufacturing. Applied is the largest maker of tools for making semiconductors, and its engineering solutions are used to create virtually every new chip globally. Its customers include Samsung, Intel, and TSMC. With all of these companies looking to build new manufacturing plants in the US, demand for Applied Materials’ solutions should be high.

Since the start of 2020, eight US politicians have purchased Applied Materials stock. Those who have bought stock include:

• Ro Khanna (Democrat)*

• Zoe Lofgren (Democrat)

• Marjorie Greene (Republican)

• Pat Fallon (Republican)

• Deborah Ross (Democrat)

• Ron Wyden (Democrat)

• Kenny Marchant (Republican)

• Jon Curtis (Republican)

This stock, like Intel and Qualcomm, is also in the value camp. At present, analysts expect Applied Materials to generate earnings of $7.83 for the year ending October 31, 2022. That puts the forward-looking P/E ratio here at 11.7.

Politician Buying in Semiconductor Stocks

In conclusion, our analysis of US politician buying in the semiconductor sector reveals some interesting insights. Not only have politicians bought shares in chip manufacturers such as Intel and Texas Instruments – which would almost certainly be beneficiaries of any potential government funding – but they have also invested in chip designers such as Qualcomm and Broadcom and companies that make semiconductor manufacturing equipment such as Applied Materials and KLA. Meanwhile, politicians have also gravitated towards value stocks in the semiconductor space, with Intel – one of the cheapest stocks in the semiconductor sector – getting the most interest from these individuals. 

* Ro Khanna is a frequent trader who generally doesn’t invest for the long term