Profit Pregame

While Competitors Struggle, This Stock Continues to Surge

The Hits Just Keep on Coming for Many Chipmakers

After the latest move from big tech sunk yet another semiconductor stock, one company is emerging at the top of the heap.

What’s happening?

As technology advances further and further, and more advanced features are added to the things we use every day – think smart TVs, self-driving cars, etc. – the need for advanced microchips has accelerated over the last several years.

Semiconductors are a topic which we’ve discussed a number of times this year already here at Profit Pregame because of the incredible profit potential the industry holds.

Since 2010, the global semiconductor industry has grown by more than $225 billion.

And because of the rapidly increasing demand, semiconductor producers have struggled to keep pace amid materials shortages and supply chain issues since the start of the new year.

But as the world’s top semiconductor stocks looked poised to finally overcome those issues, a new threat is looming over the industry.

With competition among the top tech firms getting increasingly fierce, some major companies are starting to bring the development and manufacturing of the chips their devices require in-house.

It’s a trend that’s leaving some semiconductor firms out in the cold, while their competitors thrive.

Where’s the money?

On Monday, Google unveiled the latest version in its line of Pixel smartphones.

And the preeminent feature of the new Pixel 6 phone is something that has alarm bells ringing for some top chipmakers.

The new generation of Google smartphones will be powered by the new Tensor SoC – a chip of Google’s own design. By creating the chip that will run the operating system of its new phone from the ground up in-house, Google is able to better improve the features that its competitors have thus far been able to outshine it on – namely computing power and video performance.

While that’s likely good news for Google in its bid to snatch market share away from Samsung and Apple, the big loser here is obviously QUALCOMM Incorporated (QCOM) – which had been contracted to provide the chips in prior versions of Google Pixel phones.

With Google now designing its own chips, QCOM will lose that business, as well as a vital foothold in the smartphone space. Shares of QCOM fell by as much as 3.75% following the news.

While Google’s smartphones still only command a relatively small market share – something it hopes to improve on with its latest offering – this does mark a distressing trend for chipmakers.

This is just the latest in a series of moves by big tech firms to bring semiconductor production in-house.

In November 2020, Apple Inc. (AAPL) announced that its newest line of Mac computers would run on its very own M1 chip, instead of Intel Corporation (INTC) processors as they had for the last 15 years.

But while some semiconductor companies are losing business as device manufacturers begin to design their own chips, one company just inked a major deal that will keep their chips in some of the world’s most popular smartphones for the foreseeable future.

How do I get some?

Back in February, I recommended scooping up shares of Advanced Micro Devices, Inc. (AMD) after its price fell to $83 during the height of the semiconductor shortage.

Well, I sure hope you took that advice, because AMD shares have soared by over 35% since that time.

And the good times look like they’re going to keep on rolling for AMD after the chipmaker secured a deal in June with Samsung – one of the top two largest smartphone producers in the world – to help develop its next generation system-on-chip.

The partnership will be a solid new source of revenue for AMD and will ensure it keeps its chips in Samsung’s flagship smartphones for years. AMD has already been steadily ascending in the computer chips space for years and has taken significant market share away from competitors like Intel and QCOM.

As the semiconductor shortage eases, we could see a wave of demand for advanced chips as industries that have been forced to scale back production of devices needing semiconductors look to ramp up production once again.

And with everything that it has going for it right now – while its major competitors face headwinds – AMD remains my favorite name in this space.

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In the Spotlight: More semiconductor headwinds

NVIDIA Corporation (NVDA) is the largest semiconductor company in the U.S. by market capitalization. And that lead looked poised to grow even more as NVDA secured a deal to acquire Arm Ltd. In a bid to expand its business in more markets.

But yesterday, a major wrench was thrown into those plans.

Following an investigation into whether the merger would be anti-competitive, the United Kingdom’s Competition and Markets Authority (CMA) is now threatening to block the deal.

The CMA will now take a deeper look into the potential merger after citing security concerns as the main reason for its reluctance to approve the deal.

The holdup for NVDA further solidifies AMD as the semiconductor stock to buy right now, but does present a potential profit opportunity in Nvidia.

Shares of NVDA fell as much as 4.95% on Tuesday and could be in for more selling pressure as the investigation drags on. But should the merger be approved in the end, this delay could prove to be a great chance to buy discounted shares of NVDA.

It’s too early to jump in yet, but I’ll be watching for any developments surrounding the Nvidia and Arm merger. Stay tuned.

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