In this episode of “Investment Management Foundations,” Wealth Enhancement Senior Portfolio Manager Ayako Yoshioka details the evolution of computer chips and how they, along with the CHIPS Act of 2022, impact investment markets.
VIDEO TRANSCRIPT BELOW
Hi, and welcome to another edition of “Investment Management Foundations.” My name is Aya Yoshioka, Senior Portfolio Manager here at Wealth Enhancement Group. It may sound obvious, but the digital world we live in today wouldn't exist without chips—or integrated circuits of transistors, microprocessors, and semiconductor materials. In the mid-1960s, the founder of Intel observed that the number of transistors in an integrated circuit would double every two years and require half the electricity needed to power it. This was known as Moore's law. This doubling of computer power has lasted for years, and the central processing unit, or CPU, is constructed from billions of transistors with multiple processing cores and has been essential to modern computing systems as it executes the commands and processes of the computer and its operating system.
However, in recent years, it has become more difficult to double the capacity of CPUs, and graphic processing units, or GPUs, have become increasingly utilized. GPUs are made up of smaller and specialized processing cores and can deliver faster performance by dividing up the tasks across multiple cores at the same time, so they run in parallel. The GPU became increasingly important in gaming, as it allowed for very realistic graphics. And it led to the development of machine learning and large language models, which are now known and utilized in things like chat GPT, so it really brought forth the age of AI, or artificial intelligence. Many chips are designed by chip companies but aren't necessarily manufactured by them. So, companies like Taiwan Semiconductor and ARM Holdings are well known fabricators, known as fabs.
Given the increasing importance of chips, President Biden passed the CHIPS and Science Act in August of 2022. This Act authorized $280 billion in new funding to boost domestic research and manufacturing of semiconductors here in the U.S. The Act included $39 billion in subsidies for chip manufacturing on U.S. soil, along with 25% in investment tax credits for costs of manufacturing equipment, and $13 billion for semiconductor research and workforce training. Analysts estimate that the act has incentivized over 30 projects, with a total projected investment of over $160 billion.
The policy, alongside increasing use of chips in so many of our devices, including cars, cell phones, laptops, and even washing machines, has led to increasing construction of manufacturing facilities. These fabs that I mentioned, as well as the growth of many chip companies that comprise the SOX Index, the Philadelphia SOX, a semiconductor index, and this index consists of 31 well-known tech companies such as Nvidia, Taiwan Semiconductor, Broadcom, ASML, AMD, Qualcomm, Texas Instruments, and Intel. We continue to believe that the index is one to keep an eye on as technology advances and chips continue to be increasingly integrated into more and more devices. Thanks again for listening, and stay tuned for another episode of Investment Management Foundations from Wealth Enhancement Group. Thank you!
This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor's specific circumstances. Investing involves risk, including possible loss of principal.
