And TSMC owns all the cards

“Did you run 1000 miles just for this game?” “ Christmas 1988 was a stressful time for many American parents. by Nintendo Super mario bros 2 was the go-to toy that year. But copies of the hit video game were as rare as hen’s teeth.

ABC News organized a 20/20 shortage special called “Nuts for Nintendo”. They spoke to a father who drove 1,000 miles from Indiana to New York City hoping to get a copy.

“I tried 7 stores a day for 3 weeks and still can’t find it” he told reporters. They called it a “flea famine”.

Why was it so difficult to get your hands on a video game? Longtime RiskHedge readers know that computer chips, also known as semiconductors, are the “brain” of electronics. There wouldn’t be an iPhone, Amazon Webstore, or online messaging apps without them.

Semiconductors were also a key part of those bulky old Nintendo game cartridges you may remember from the ’80s and’ 90s. And they were scarce in 1988.

They were so rare that employees at chip factories across Japan had to cancel vacations and work around the clock. In short, it capped the number of video games Nintendo could physically make.

Have you heard of the latest shortage?

Japanese automaker Toyota shut down its San Antonio plant last month. GM, Volkswagen, Ford, Honda and Fiat Chrysler have also been forced to close their factories. In fact, GM has said assembly lines will not restart until the end of March.

It wasn’t due to lockdowns or a COVID outbreak. The reason was a shortage of semiconductors.

Automakers spent $ 43 billion on microchips in 2019. And did you know that the average electric car has around 3,000 chips? These microchips often only cost a few dollars, but you can’t ship a $ 50,000 car without them. Everything from power steering to instrument panels and automatic brakes work on semi-trailers.

In fact, both GM and Ford have warned that the shortage could squeeze profits by $ 2 billion this year. And now it touches everything from PlayStations to iPhones.

I walked last week along Line 100 in Dublin city center. They were all gamers waiting to get their hands on the Playstation 5. It came out last November, but Sony said the lack of chips limited the number of units it could make.

Apple

AAPL
CEO Tim Cook said Reuters that the shelves are empty in many of its stores because the supply of semiconductors is “very limited”. This semi-scarcity highlights something RiskHedge readers know well: The whole world is running on chips these days. In fact, semiconductor sales have only been one way our entire life: UP!

This has been a boon to chipmakers, now valued at around $ 5,000 billion combined. That’s five times what they were worth in 2016.

In December I told my Disruptive investor subscribers on the most important building in the entire tech industry. Located near a 400-year-old temple in Taiwan’s seventh largest city, this factory manufactures the most precious goods the world has ever known.

In the last six months alone, tech giants like Apple and Nvidia

NVDA
spent $ 25 billion on the key product inside that factory. Walking around the facility would take 10 minutes, it could take an hour, which is also not possible for “foreigners”. Security guards jump out of their huts to check every incoming car.

To enter the factory, you must go through TSA level security. Empty your pockets, kick your shoes off, go through body scanners… and get ready to be petted.

The factory is run by Taiwan Semiconductor Manufacturing Company (TSM). And that’s the zero point for the chip shortage. Nvidia, Qualcomm

QCOM
, and AMD are often referred to as “chipmakers”, but that is a misnomer. These companies do not actually manufacture semiconductors. They are more like architects, drawing up complex plans and designs for chips.

When it comes to physically manufacturing the chips, they hand the reins over to TSMC from Taiwan. TSMC is the world’s largest semiconductor manufacturer. Today, more than 70% of high-end chips pass through its factories.

Remember, the whole world works with fleas these days. But TSMC is one of the only chipmakers capable of making the cutting-edge chips that Apple and automakers need.

In fact, the demand for its chips is so high that capacity is booked until this fall. This is why automakers like Ford and GM have been forced to stop production. And why millions of children couldn’t get their hands on a Playstation 5 this last Christmas.

Semiconductors are now the world’s most important resource

As I said Risk Coverage readers last month, chips overtook oil as the world’s most valuable resource. Remember the energy crises of the 1970s, when countries panicked about being cut off from Middle Eastern oil?

Now it’s the lack of computer chips that keep them from sleeping at night. Germany’s finance minister even sent TSMC a letter begging it to prioritize auto chips.

Cars are the perfect example of our growing dependence on semi-trailers. In 2005, most cars didn’t even have a chip. Today, no automaker can do business without them.

And remember, semiconductor sales have increased throughout our lifetimes. I bet this trend will continue for decades to come.

As the world’s leading supplier of advanced chips, TSMC owns all the cards. In fact, both the US government and the European Union are trying to entice TSMC to build factories overseas. The only problem with the disruptor is figuring out how more tokens.

TSMC stock has climbed 140% in the past year. I have no doubts that it is going well above $ 200 / share in the years to come.

Investing in top chipmakers like TSMC is the surest way to make money over the next decade.

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About Mary Moser

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