As the U.S. Department of Commerce commenced the process for corporations to apply for manufacturing incentives under the CHIPS and Science Act, large participants like Taiwan Semiconductor (NYSE:TSM), Intel (NASDAQ:INTC), and Micron Technology (NASDAQ:MU), who have committed billions of dollars into setting up new chip manufacturing plants in the U.S., are most likely to benefit from it.
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With chips forming the basis for most of the things we use today, the U.S. is pouring billions of dollars to secure its supply chain, lower its dependence on Asia, and create more jobs. Through the CHIPS and Science act, the government is offering $52.7 billion as incentive for the research, development, and manufacturing of semiconductors in the U.S.
The enactment of the CHIPS Act led top manufacturers to commit billions of dollars in investments to ramp up semiconductor production in the U.S.
Taiwan Semiconductor plans to invest approximately $40 billion in constructing two semiconductor fabrication plants in Arizona. Meanwhile, Micron intends to invest up to $100 billion over the next 20 years to build the largest fabrication facility in Central New York.
Another major company, Intel, has committed over $20 billion to construct two chip manufacturing facilities in Ohio.
A Big Win for Chip Companies?
With their multi-billion planned investments, these large corporations are set to gain the most from the government’s grants. However, it will take several years for these companies to realize the benefits of manufacturing grants, as these fabrication facilities will take time to become operational. Also, the recent downturn in the chip market could force these companies to delay their investment process.
It’s worth highlighting that companies that are given incentives must share a part of their profits with the government. Moreover, these companies will be required to limit stock buybacks and dividend payments. The grant beneficiaries are subject to other demands as well: companies will be required to provide affordable child care for workers, and use U.S.-made iron and steel to construct manufacturing facilities.
Against this backdrop, let’s look at what the Street recommends for these chip makers.
Is TSM A Buy, Sell, or Hold?
World’s largest semiconductor manufacturing and design company, Taiwan Semiconductor, is grappling with lower demand for chips due to macroeconomic weakness. While the company faces short-term headwinds, the increase in pricing and expected recovery in demand could drive its stock price higher.
TSM stock has received four unanimous Buy calls from analysts, reflecting a Strong Buy consensus rating. These analysts’ 12-month average price target of $104.33 suggests an upside potential of 19.82%.
What’s the Projection for Micron Stock?
Like TSM, Micron is witnessing pressure on its top and bottom lines. Given the challenges, Micron announced a reduction in the base salaries of its top executives. Analysts are cautiously optimistic about Micron stock due to the weak demand, lower pricing, demand-supply imbalance, and macro uncertainty.
With 16 Buy, four Hold, and two Sell recommendations, MU stock sports a Moderate Buy consensus rating. Meanwhile, the analysts’ average price target of $64.55 indicates 11.64% upside potential.
What is the Price Target for INTC?
The aalysts’ average price target of $27.20 implies 9.11% upside potential in INTC stock. While the upside is limited over the next 12 months, INTC stock carries a Hold consensus rating on TipRanks. Besides for the industry-wide challenges, Intel is losing market share to competitors, which is a concern.
Intel stock has received three Buy, 18 Hold, and seven Sell recommendations from analysts.
Bottom Line
The government’s active role in driving chip production and significant investments by these companies indicates a stable domestic supply of semiconductor chips in the future. Near-term weakness across the industry and increased competitive headwinds suggest that TSM and MU stocks could emerge as stronger players.
