It’s good to be a semiconductor company. Even in the middle of a pandemic.

As I write this, chip stocks are marching higher on the heels of Analog Devices Inc.’s (Nasdaq: ADI) $21 billion takeover of rival Maxim Integrated Products Inc. (Nasdaq: MXIM). It’s the largest deal announced so far this year.

Just a few months ago, the impact of the pandemic was throwing consumer and industrial end markets into question.

Now this deal shows confidence that key chip markets, such as 5G and automotive, are resuming their upswing.

But not all chip stocks are in on this rally. Year-to-date returns range from -24% to +78% among holdings in the VanEck Vectors Semiconductor ETF (Nasdaq: SMH).

And one of the laggards is industry bellwether Intel Corp. (Nasdaq: INTC).

But it’s no surprise why. Apple Inc. (Nasdaq: AAPL) recently announced that Mac computers would transition away from Intel chips.

Then the company was dethroned by NVIDIA Corp. (Nasdaq: NVDA) as the most valuable chipmaker in the U.S. by market capitalization.

And earlier this year, one of its biggest rivals, Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM) announced plans to build an advanced facility in the U.S. — Intel’s home turf.

But there’s more to this story. In fact, Intel stands to emerge stronger than ever from this pandemic thanks to a seismic change that’s about to shake up this industry.

Intel Is the Answer to This Big Problem

Maybe it’s not the biggest U.S. chipmaker by market cap anymore, but Intel is by far the biggest by revenue, with nearly $72 billion in sales last year. That’s more than two times the revenue of its closest competitor.

Its share of the microprocessor market is double the next competitor as well, as you can see:

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And it holds a commanding lead in the market for server chips, which is red-hot due to data-center demand. Sales in Intel’s data-center segment jumped nearly 43% in the most recent quarter.

But here’s something else to consider. The pandemic and ongoing geopolitical tension with China have exposed critical supply chain risks in the semiconductor industry:

  • Offshoring of technology supply chains led to significant disruptions once the pandemic hit. Simply having access to critical components has become more important than saving costs.
  • That’s because the U.S. is at risk of being shut out from the most advanced semiconductor products that are increasingly manufactured by strategic competitors like China.

There’s really only one solution to these problems. And it is sure to benefit Intel coming out of the crisis.

That solution? Secure America’s spot as the leader in chip technology.

That’s why there is now a bipartisan effort to funnel billions of dollars’ worth of grants and tax credits to chip companies that invest in domestic manufacturing capacity along with research and development.

And no other company in America is as important to chip manufacturing and advanced semiconductor technology as Intel. The stakes are high, and ensuring Intel’s success is critical.

So bet on Intel coming out of this crisis stronger than ever before. The next wave of tech-driven economic growth depends on it.

Best regards,

Ted Bauman Signature

Clint Lee

Research Analyst, The Bauman Letter