What Factors Are Playing Into the Global Chip Shortage?

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Apr. 28 2021, Updated 12:00 p.m. ET

The global microchip shortage has been a hot topic for months, and it doesn't seem like we're out of the woods yet. For manufacturers focusing on automotive vehicles, PCs, laptops, smartphones, gaming devices, and more, the effects are real. 

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The reasons behind the semiconductor shortage are really a perfect storm. Some experts suggest that supply will ramp up in the second half of 2021, but only time will tell. 

The remote work and digital learning boom contributes to higher demand.

Remote work and school became the norm during the COVID-19 pandemic. Many employees and students weren't adequately equipped for the technological shift, which caused a spike in the demand for computers and gear.

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You can visualize this demand in the stocks. Shares from Taiwan Semiconductor Mfg. Co (NYSE:TSM) doubled in value in just over six months after the COVID-19 market crash. TSMC is currently ramping up production efforts and has surpassed production leader Intel in terms of market value. 

Intel's role in the chip shortage

Over the past few years, Intel (NASDAQ:INTC) has struggled to maintain the production levels necessary to lead the sector. While the company still produces the most x86 CPUs for PCs and data centers in the world, other products are suffering from corporate mishaps.

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Since 2018, Intel's 10nm chips and 7nm chips have both faced issues, which delayed the production of chips and other products. Shares for Intel are up 9.69 percent in the last three years, which is a modest return below the market average. 

For Americans, semiconductors are an imported necessity.

In early April, President Biden called for funding to help boost the domestic semiconductor production market. He allocated $50 billion out of his $2 trillion infrastructure act to semiconductors.

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chip shortage biden
Source: Getty Images

This hasn't been approved yet by Congress, but Biden's notion of strengthening the domestic supply chain could make a world of difference within America's delineations. However, it wouldn't do much for overseas chip companies like NVIDIA Corporation (NASDAQ:NVDA), whose shares are up 17.69 percent YTD due to positive investor sentiment. 

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As a sector, semiconductors are enjoying their moment of fame.

Semiconductors are a tiny but crucial part of our digital existence. Still, it wasn't until the shortage that average investors started thinking about them. Stocks from essential chip manufacturing companies (like the aforementioned NVIDIA and TSMC) are well-positioned to respond to the ongoing shortage. After all, we need them—shortage or not.

However, there are exclusions to the rule. For one, Intel has been struggling for the past few years and will likely experience more volatility. Then there's Cadence Design Systems (NASDAQ:CDNS), whose shares plummeted by at least 9.17 percent in the morning on April 27. Despite beating the first-quarter earnings expectations, the second-quarter outlook looks uncertain. This could put the company's full-year outlook below the expectations, which is why many investors are dipping out now.

All in all, even a thriving sector like semiconductors isn't immune from bear runs, as evidenced by chip companies in the midst of a global supply shortage as we speak.

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