The world will never be able to stop the growing demand - and advancements - coming from the chips and semiconductor industry. This is one of those spaces that can be compared to oil booms in decades past, where new companies get involved to increase production and refinery efficiencies and capabilities.
Moreover, governments also tend to get involved when there is a power grab of this magnitude. Oil has been known to spark new rivalries and even wars. Today, the world of chips and semiconductors is no different, as companies worldwide have taken sides between China and the United States.
While China has been attracting some smart money investments from the likes of Ray Dalio and even other tech firms, there is a clear preference for companies looking to diversify their supply chains and operations to other geopolitical make-ups. Today, the filtering has been done for you to be able to expose yourself to your own thinking camp.
Intel
Apart from gaining significant upside momentum so far into 2023, this stock has grabbed a transparent winning poll from overall markets and investors, all for good reason. Intel (NASDAQ: INTC) comes at the top of the list for you to pick the American side of this chip war.
On a year-to-date basis, Intel stock has outperformed the S&P 500 by 23% in a landslide win for preference. The question becomes whether the stock can keep up its momentum, especially during these volatile periods full of unknowns from all over the industry.
Comparing this stock to the rest of the industry can prove to be a lucrative process this time, as the market is giving out clear signs as to where it expects Intel stock to move amid all this escalating conflict. You can come to similar conclusions by following these metrics.
On earnings per share, which typically drives the stock's valuation, analysts expect the stock to deliver a 175% jump into next year for this figure. Naturally, when analysts get too bullish on their projections, markets come to humble them, but this time around, they seem to agree.
How can investors tell? They can hop over to the forward price-to-earnings ratio, also known as the market's way of slapping on a value on these expected earnings.
For Intel, this stands at a 21.2x multiple, above the industry's average of 15.0x. Now, wait a minute. How can anything good come from following the more expensive name in the space?
Think of it like any other product or service; if it can command a high price, it must be for a reason usually linked to quality or other factors. In the case of Intel, markets are willing to pay a premium price for the company's exposure to the United States in this race for chips.
Those investors in Camp USA can bet on Intel providing the necessary infrastructure for the nation to supply its chips, as the company has been actively expanding its factories and other such projects to make this a reality.
Taiwan Semiconductor
Standing as the Switzerland of all countries during conflict, Taiwan Semiconductor Manufacturing (NYSE: TSM) comes in between the two giant powerhouses clashing against each other.
While China is looking for ways to justify reclaiming Taiwan as its territory, the U.S. is interested in protecting the island, considering that Taiwan Semiconductor provides a good chunk of the chips needed back home.
Considering that this stock has been flatter during 2023, it reflects its neutrality during this conflict in the price as well. Analysts may be looking at the stock from a more objective perspective.
With a consensus price target of $108.3 a share, the implication is that this stock will need to rise by as much as 25% from today's prices to reach a proper valuation. The driver behind these targets? Pure fundamental juice.
With EPS expected to jump by 20.1% next year, markets are weighing in all the risks in the current environment. They are willing to put their viewpoint on the table regarding these expected outcomes.
Taiwan Semiconductor stock is valued at a forward P/E ratio of 15.0x, along the industry average. This can be taken as a message from markets, who remain neutral about the possibility of the stock being a winner or loser.
Looks like the very nature of the company's positioning in the geopolitical landscape is being directly reflected by the expectation for the stock's performance.
For those unsure who will win the race, Taiwan offers the perfect safe haven to enjoy increasing demand and sales while not necessarily getting on any nation's wrong side.
Micron Technology
On the other side, investors have a stock that has been putting a lot of its chips (both political and capital) into the Chinese end of things. Micron Technology (NASDAQ: MU) is seeing the dire effects of pushing against the market's preferred terms of strategy.
When it comes to perspective, analysts still agree on a roughly 14% upside in this stock. However, markets do not necessarily agree with this view.
While these same analysts are pointing to a near 35% jump in EPS for next year, markets are not buying it. A forward P/E ratio of only 12.3x will place this stock below the industry average, creating two opportunities for investors.
First, markets do not like Micron's exposure to China. Hence, they are unwilling to pay the average price for this stock and will drive it into discounted territory.
Those investors who believe China will come out as a winner - or at least benefit - during this chip race can pick up a discounted name with reasonable growth ahead of it.
Second, it gives an accurate time measure of where sentiment is during this conflict. If Micron begins to outperform Intel, you know who is gaining ground ahead of who; the other way around will also apply.
