Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
This Dividend Aristocrat Is Leading the 5G Revolution - 22nd July 19
What the World Doesn’t Need Now is Lower Interest Rates - 22nd July 19
My Biggest 'Fear' For Silver - 22nd July 19
Reasons to Buy Pre-Owned Luxury Car from a Certified Dealer - 22nd July 19
Stock Market Increasing Technical Weakness - 22nd July 19
What Could The Next Gold Rally Look Like? - 22nd July 19
Stock Markets Setting Up For A Volatility Explosion – Are You Ready? - 22nd July 19
Anatomy of an Impulse Move in Gold and Silver Precious Metals - 22nd July 19
What you Really need to Know about the Stock Market - 22nd July 19
Has Next UK Financial Crisis Just Started? Bank Accounts Being Frozen - 21st July 19
Silver to Continue Lagging Gold, Will Struggle to Overcome $17 - 21st July 19
What’s With all the Weird Weather?  - 21st July 19
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Please Don’t Buy the Dip in Nvidia or Other Chip Stocks

Companies / Tech Stocks Jun 14, 2019 - 08:03 AM GMT

By: Stephen_McBride

Companies

What do an iPhone and Nike sneakers have in common?

Both are made by iconic American companies. Both are also made in China.

American goods used to be made in America. Then cheap labor transformed China into the “world’s factory.”

Today we get 80% of our air conditioners, 70% of TVs, and 60% of shoes from China. But there’s one disruptive area that America still dominates.

Stocks in this area can produce huge profits (or losses) depending on how the US-China trade war shakes out. In fact, I picked a safe chip-making company as one of my three favorite disruptor stocks for 2019.


The Last Great “Made in the USA” Industry

It’s computer chips.

As you may know, computer chips serve as the “brains” of electronics like your phone and laptop.

These days, chips are no longer just in computers and phones. They’re part of everyday life.

Not long ago there was only a handful of chips inside the average car. Remember when you had to crank a knob by hand to roll your car window up?

Thanks to computer chips, that’s all changed. There are 1,500 computer chips packed into a Tesla Model 3 electric car, according to investment bank UBS.

No Country Can Challenge America in Chips

American companies like Intel (INTC), Qualcomm (QCOM), and Nvidia (NVDA) control over half of this colossal $469-billion market.

Chip demand has surged 15X over the past decade. As the use of computer chips has exploded, so has the revenue they generate.

Since 2009, Intel’s revenue has more than doubled. While Nvidia’s has surged 240% and Qualcomm’s has jumped 120%.

Computer chips are the US’s third-largest export, according to the Semiconductor Industry Association (SIA).

No country has been able to challenge America’s superiority in computer chips. The reason is their complexity. Computer chips are one of the most complicated and costly things on earth to develop.

It took American companies decades and hundreds of billions of dollars to master chip-making. It will likely take another decade, at least, for any other company to catch up.

The Achilles’ Heel of American Chip-makers

Despite their stranglehold on the market, US chip-makers have a big vulnerability.

They get over 80% of their revenues from other countries, according to SIA. Worse, more than half comes from China.

China is by far the world’s largest buyer of computer chips. It bought almost 60% of all the computer chips America produced last year, according to “Big 4” accounting firm PWC.

China spent $260 billion on computer chips in 2018. It now spends more on buying chips than it does on oil. That’s astounding when you consider it’s also the world’s #1 buyer of oil.

It’s scary how reliant many American chip-makers are on China…

Radio-frequency firm Skyworks Solutions (SWKS) gets 25% of its revenue from China.

Chinese companies account for close to two-thirds of 5G leader Qualcomm’s sales.

And graphics chip leader Nvidia (NVDA) gets 44% of its sales from China.

Doing business in China has been great for these companies. It’s been a main source of their tremendous sales growth over the past decade.

But with the “trade war” between the US and China getting worse, worried investors are dumping their stocks, as you can see here:

This Is a MUCH Bigger Problem for China than for the US

China’s largest and most important companies have a hopeless dependency on US chips.

As I mentioned last week, smartphone giant Huawei spent $20 billion on US chips alone last year. Almost every phone it makes runs on American chips.

China needs US chips, and the US Government knows it. That’s why Trump is using it to twist China’s arm in trade tasks.

Last summer, the US ordered a ban on chip sales to phone maker ZTE (ZTCOY). Without access to US chips, ZTE had to shut down production.

When I say “shut down,” I mean literally. Its factories had to stop making phones. ZTE, which employs over 75,000 people, was dead in the water without US chips.

Its stock plunged 55% in weeks. ZTE was on the verge of going out of business until the White House lifted the ban a couple of weeks later.

As you might know, China has its own versions of many big American companies.

Baidu (BIDU) is China’s Google. Alibaba (BABA) is China’s Amazon. China Mobile (CHL) is China’s AT&T.

All three are massive buyers of US chips. The US Government knows it can suffocate them by cutting off supply.

Look at how their stocks have crashed lately as trade talks have fallen apart.

Chip Stocks Will Be a Rollercoaster as Long as the Trade War Drags On

When a US-China trade deal looked to be headed in the right direction late last year, the US chip ETF (SOXX) shot up 48%.

But since talks fell apart in late April, it’s plunged more than 15%.



With such a huge number of their businesses linked to China, little will change until a deal gets signed.

Until then, I’m being cautious with American chip stocks and avoiding the Chinese companies dependent on them altogether.

Why invest in a company that could be crippled at the whim of a politician?

On the other hand, there’s hope this may help the US and China arrive at an agreement sooner rather than later.

China needs American computer chips. There’s no way around it. The optimistic take is that it has little choice but to “play ball” with America to get trade flowing more freely again.

By Stephen McBride

http://www.riskhedge.com

© 2019 Copyright Stephen McBride - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules