U.S. policymakers are considering a semiconductor incentive package that would infuse the sector with about $25 billion over five years. The bi-partisan bill includes R&D tax credits and equipment-purchase credits meant to increase the global competitiveness of the U.S. industry.
In the near-ish term, the policy could drive incremental growth in semiconductor equipment stocks, such as Applied Materials, Inc. (NASDAQ: AMAT), Lam Research Corporation (NASDAQ: LRCX) and KLA Corp (NASDAQ: KLAC), according to Bank of America.
“Indeed higher U.S. manufacturing could also lower overheated sentiment overhang against China exposure,” analysts Vivek Arya and Adam Gonzalez wrote in a note.
The incentive package could also boost the profitability of domestic chipmakers by reducing the opex and tax burden; catalyze a manufacturing shift from Taiwan; and inspire Intel Corporation (NASDAQ: INTC) to pursue foundry goals more aggressively.
Lengthy, Uneven Payoffs
The payoffs could take time to manifest, though.
“In our view, translating funding intentions into practical legislation and then to cutting-edge U.S. manufacturing will take a matter of years given the complexity (only 3 leading-edge chip-makers in TSMC, Intel, Samsung), expense ($10-$15 billion for a new fab) and time (2+ years),” Arya and Gonzalez wrote. “Semis is a global industry, so just relocating manufacturing will not change overall demand ($5 billion incremental in US means $5 billion less overseas), and could create stranded capacity/make the industry more cyclical.”
They added that the legislation seems to target specific logic chips rather than memory chips, the latter of which is a U.S. specialty.
Industry Implications
In the long run, Bank of America suspects the incentive package could catalyze fragmentation of the global industry.
“The question is whether increasing sovereign investments in both US, China, and maybe in other countries will change the industry structure. We are skeptical, but do see more fragmentation, with Asian vendors supplying either lower-performance, good-enough parts or higher-performance but less cost-efficient parts for certain markets.
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Latest Ratings for AMAT
| Date | Firm | Action | From | To |
|---|---|---|---|---|
| May 2020 | Barclays | Initiates Coverage On | Equal-Weight | |
| May 2020 | CFRA | Maintains | Hold | |
| May 2020 | Mizuho | Maintains | Buy |
View More Analyst Ratings for AMAT
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