Investing in chips: The building blocks of the future

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested. Marketing information.

Semiconductors and computer chips form the invisible backbone of our digital world. They are found in everyday technology such as smartphones, fridges and cars. Specialised chips also play a key role in the development of artificial intelligence (AI), 5G mobile networks and electromobility.

Which companies manufacture chips?

The manufacture of computer chips is complex, which is why companies often focus on individual steps in production.¹ Chip designers such as Apple, Nvidia or Qualcomm, for example, do not have their own chip factories (fabless). They are therefore dependent on contract manufacturers (foundries) such as the Taiwanese group Taiwan Semiconductor Manufacturing (TSMC) or GlobalFoundries.²

There are also integrated device manufacturers (IDMs) that take over all production steps from design to manufacture themselves. Examples include Intel, Infineon, Samsung and Texas Instruments.³ Some IDMs, such as Samsung and Intel, offer contract manufacturing for other companies - in other words, they compete with pure foundries.⁴

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any financial instrument or product or to adopt any investment strategy.

Investing in chips: opportunities

Due to the ongoing digitalisation in all areas of life and technological progress, the demand for semiconductors is constantly increasing. The US market research company Gartner expects global sales of semiconductors to increase by 17 per cent year-on-year to USD 624 billion in the current year.⁵

There is no guarantee that any forecasts made will come to pass.

Investing in chips: risks

The semiconductor industry is heavily dependent on the global economy. Trade conflicts and unexpected supply bottlenecks could put a damper on the industry in the short to medium term. In addition, there is always the risk that a new generation of chips will disrupt the existing semiconductor market and turn today's winners into tomorrow's losers. Another aspect that should be considered when investing in the semiconductor sector is the reorganisation of supply chains. This in turn could offer investment opportunities for investors.

Investing in the semiconductor industry

There are various ways to invest in the chip industry:

• Equities: Investors can buy shares in companies involved in semiconductor manufacturing, such as integrated device manufacturers (IDMs), fabless companies and foundries
• ETFs: There are also exchange-traded funds (ETFs) that target the entire semiconductor industry value chain and offer broad diversification
• Bonds: Companies in the semiconductor industry also issue bonds (debentures) that promise interest payments.

Sources

1. https://www.deloitte.com/content/dam/assets-zone2/uk/en/docs/industries/energy-resources-industrials/2023/deloitte-uk-reimagining-the-auto-manufacturing-supply-network.pdf, 30.08.2023
2. https://www.investopedia.com/ask/answers/050615/what-are-fabless-chip-makers-and-why-are-they-important-semiconductor-market.asp, 31.01.2024
3. https://semiengineering.com/knowledge_centers/manufacturing/integrated-device-manufacturer-idm/, 2024
4. https://www.crn.com/news/components-peripherals/2024/intel-launches-world-s-first-systems-foundry-with-expanded-road-map-to-take-on-tsmc-samsung, 21.02.2024
5. https://www.gartner.com/en/newsroom/press-releases/2023-12-04-gartner-forecasts-worldwide-semiconductor-revenue-to-grow-17-percent-in-2024, 04.12.2023

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