BofA analyst Vivek Arya could see the United States offering over $50 billion in subsidies to stimulate domestic semiconductor manufacturing and R&D.
His estimates come in the light of today's appearance of CEOs of Intel (NASDAQ:INTC), Micron (NASDAQ:MU), and Lam Research (NASDAQ:LRCX) in front of a US Senate Committee.
The hearing is expected to focus on the domestic semiconductor supply chain, R&D, competitiveness, etc.
Arya warns that government funding could help but it is not a silver bullet.
We are skeptical that enhanced subsidies could address these concerns anytime soon. Neither Intel nor Micron are technologically/strategically equipped to address these issues. Near-term shortages are in trailing edge chips for auto/industrial applications, not in PC/server processors (Intel) or memory (Micron). Building a credible alternative to Taiwan (Taiwan Semiconductor Manufacturing (NYSE:TSM)) requires a dedicated foundry with tech/scale/experience/business strategy which we don't believe any US foundry is equipped for, the analyst said in a client note.
Along these lines, Arya lists stocks that could benefit the most from the direct subsidies. Intel is seen as the biggest beneficiary, but Arya says that some of this funding is already embedded in the company's outlook.
Instead, investors should focus on these semi stocks:
1) GlobalFoundries (GFS): focused US-headquartered foundry, any new US funding incremental to street FCF estimates, and a key part of addressing supply shortages in auto markets (we note recent relationships with Ford, BMW etc. to secure capacity);
2) Texas Instruments (NASDAQ:TXN): boosted capex for US-based trailing edge analog/embedded fabs, any subsidy could help boost FCF; and
3) Semicap equipment vendors (KLAC, AMAT, LRCX and others) who benefit from investments in new manufacturing capacity.
The analyst also says the US government might also need to speak to Taiwan Semiconductor (TSM) to reconsider its western manufacturing plans.
By Senad Karaahmetovic