Apple (Nasdaq: AAPL) CEO Tim Cook spoke at an event to commemorate the launch of a new Taiwan Semiconductor (Nasdaq: TSMC) in Arizona, where he made news by confirming that Apple will be a buyer of chips produced at the new facility and emphasizing that Apple will likely be the biggest customer of the new factory. It's expected that these will include chips for the newest iPhones, iPads, and Macs.
These will include 4-nanometer and 3-nanometer chips that are used in processors made by Apple, Nvidia (Nasdaq: NVDA), and AMD (Nasdaq: AMD). President Joe Biden also spoke at the event, where he applauded Apple for its decision to re-shore some of its supply chains and reduce its reliance on Asian countries which has increasing urgency given the concerns about a war between China and Taiwan, and corporations looking to reshape supply chains following the pandemic.
Currently, the world is very reliant on chip production from Taiwan which increases its strategic importance and is a vulnerability in the event of a disruption. The Arizona factories are subsidized by the recently passed CHIPS and Sciences Act.
Intel (Nasdaq: INTC) is also building its own production facility in Arizona and has another planned in Ohio. Intel has fallen behind Nvidia, AMD, and Taiwan Semiconductor in terms of chip speed and production, but it sees the new foundries as one way to bridge the gap.
Taiwan Semiconductor is set to spend $40 billion on two new plants with the first set to open in 2024 and the second to open in 2026. The new plants are expected to produce 600,000 chips per year which is roughly equivalent to annual U.S. demand.
Overall, the VanEck Semiconductor ETF (NYSE: SMH) is down 29% YTD. It's been somewhat under the radar but the sector has embarked on a nearly 30% rally off the mid-October lows. The exact catalyst for this rally seems to be a valuation, improvements in inflation, and a better-than-expected earnings season. There is also some optimism about reopening in China and what that could mean for demand.
Longer-term, it remains unclear whether this impulse would be powerful enough to alter the trend of slowing global growth as leading indicators continue to weaken and recession odds are increasing. For this reason, investors should remain skeptical about the current rally and wait for lower prices and more deterioration in the outlook.