Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
Laymen news-watchers might have seen the term “global chip shortage” being attributed to a variety of performance issues in a variety of companies. A “chip shortage”, also referred to as “semiconductor shortage” or “chip famine”, is a phenomenon in the integrated circuit industry, when demand for silicon chips outstrips supply.
With this article, we seek to provide a quick overview behind this phenomenon and how it affects some of the hottest stocks underpinning our products.
Root Causes
The manufacturing of semiconductors used to be a fairly distributed sector, with the US and Europe accounting for more 70% of all production. Since then, however, almost three-quarters of all production have moved to Asia.
Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at
This highly-concentrated scenario was heavily impacted by the pandemic: mandated lockdowns ushered in across Asia to combat the Covid-19 outbreak caused disruptions in the supply chains and logistics systems chipmakers depended upon to maintain production. On the other hand, since people began spending more time at home, there was a boom in demand for consumer electronics such as game consoles, smart TVs and laptops.
It bears noting, though, that this crisis was not solely due to the pandemic. It had been forecasted for quite some time that a shortage was in the cards since developing economies continued to ramp up consumption of electronics over the past decade.
Europe accounts for less than 10% of global chip production, although that is up from 6% five years ago. The European Commission wants to boost that figure to 20% and is exploring its intentions to invest 20-30 billion euros reach this target. While Intel has expressed interest in establishing a factory in Europe, it reportedly wants 8 billion euros in public subsidies in return.
The U.S. in particular has been hit hard by the shift in production: it has been increasingly more dependent on Chinese imports to satisfy its chip needs while its demand has consistently risen. Simultaneously, Chinese chip imports face increasingly stringent sanctions since the US government maintains that Chinese chip production in China has primarily military purposes.
To satisfy domestic demands, Intel announced in March that it intends to spend $20 billion on two new chip plants in Arizona, which would come online in the next 2-3 years.
With at least 1,400 chips needed per modern automobile, it was bound to impact car production. The current chip shortage is estimated to have caused a loss in production of nearly 4 million vehicles globally for 2021 alone. The problem is exacerbated by another issue: car manufacturers don’t use the most advanced — or “bleeding edge” — chips. Since the older chips are made using older manufacturing processes and chipmakers are moving towards producing higher-revenue “bleeding edge” products, filling orders from car makers would get pushed to the back of the queue.
In terms of “total” chip manufacturing leadership, the market is highly fragmented. However, Samsung and TSMC are the leaders in this field.
Consequences for Tesla, AMD and NVIDIA
Consulting firm Alix Partners announced that automakers will face the major brunt of the chip shortage, with the industry estimated to lose about $110 billion of sales this year on account of lost production. Adding further woes to this was Intel CEO Pat Gelsinger’s claim that the work and study-from-home trends during the pandemic have led to a huge strain on global supply chains.
During the earnings call in April, Tesla CEO Elon Musk likened the crisis to the toilet paper shortage that had affected many American states during the early outbreak of Covid-19 in the U.S., opining that manufacturers are ordering more microcontrollers than what they actually need. Citing global supply chain pressures, Tesla has repeatedly hiked the price of its Tesla 3 and China-built Model Y models over the past few months.
With both TSMC and Intel warning that chip supply issues could last through 2022, Nvidia stated that it expects demand for its new RTX 30-series GPU to outstrip supply for the same time period during an investors call in April. The company was also well underway to challenge Intel’s dominance in the chip maker space by announcing plans to acquire Arm Limited from SoftBank for $40 billion as well as Xilinx a $35 billion all-stock transaction in Q4 2020.
While AMD CEO Lisa Su gave a more measured response to the crisis in May by saying that the chip shortage was part of a “megacycle” and assuring investors that the industry is “really good at managing these things”, she also announced that the company would be prioritising higher-end commercial and gaming SKUs (Stock Keeping Units) over lower-end CPU components.
Micron Technology reported during its fiscal 2021 Q2 update that it’s operating near full capacity to keep up with its customers’ needs due to surging demand for electronic devices. It estimates that tight supplies of DRAM memory chips (a staple feature in most smartphones, gaming consoles, etc.) coupled with strong demand would cause the semiconductor industry to fall short on filling orders for DRAM throughout 2021 and possibly beyond. It bears noting that over 70% of the company’s business in Q2 came from DRAM memory alone.
It further streamlined its operations by buying out Intel’s 49% stake in its 3D XPoint (a new type of architecture for memory chips) joint venture to end a $400 million-a-year drag on its profits. Micron’s Utah plant that made these chips is scheduled to be sold.
In Conclusion
The chip shortage has foisted a peculiar conundrum on the auto industry: while Tesla might be pricier and possibly affected in its production targets, other carmakers are similarly affected (if not worse) and thus unable to capitalize on its shortfall. NVIDIA and AMD, on the other hand, are moving to benefit from more-expensive products in their respective catalogues under their confident estimation that sales will leave them with very low levels of unsold stock, owing to a shortage in cheaper alternative in the consumer electronics space.
If Tesla remains unaffected by virtue of everybody else being affected too, the company’s stock performance will likely not have the chip shortage be a huge factor. If consumers will purchase consumer electronics regardless of the higher prices being command, NVIDIA and AMD will do well.
If, however, other economic conditions such as inflation, job loss, reduced spending trends, etc. seep into the equation over the course of the year, all three companies will be affected, as will their peers. On the question of whether these companies will do well relative to their peers, your guess is as good as ours.
References:
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
Share this:
Manténgase en contacto
Al suscribirse aquí, acepta nuestra Política de privacidad y recibirá nuestros boletines. Puede darse de baja en cualquier momento siguiendo el enlace que se encuentra en la parte inferior de cada boletín.
Centro de Trading
This is a marketing communication. Please refer to the Prospectus of the ETPs and to the KIID before making any final investment decisions.
This information originates from Investium Limited, which has been appointed as distributor of Leverage Shares products in Europe by Leverage Shares Management Company Limited (the “Arranger”). Investium Limited with registered address at 6 Nikou Georgiou Street, Office 302, 1095 Nicosia Cyprus, is a financial services provider regulated by the Cyprus Securities and Exchange Commission (CySEC).
The information is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice. Investium Limited and the Arranger (together referred as “Leverage Shares”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. The views and opinions expressed are those of the author(s) but not necessarily those of Leverage Shares. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results. Information provided by third party sources is believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed.
All performance information is based on historical data and does not predict future returns. Investing is subject to risk, including the possible loss of principal. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Leverage Shares.
© Leverage Shares 2025
Never miss out on important announcements. Get premium content ahead of the crowd. Enjoy exclusive insights via the newsletter only
Never miss out on important announcements. Get premium content ahead of the crowd. Enjoy exclusive insights via the newsletter only.
INVESTOR TYPE:
LOCATION:
Please confirm the Terms and Conditions by clicking on “I agree”.
This website is for informational purposes only.
This website is accessible to retail investors in the EU for informational purposes only. Leverage Shares does not directly distribute to retail investors. Retail clients should not rely on any of the information provided and should seek independent financial advice.
Information contained in this website is intended only to provide general and preliminary information and does not constitute any legal or investment advice, an offer to sell or solicitation to buy any security, including shares of any Exchange Traded Products (“ETPs”).
An investment in the promoted ETPs may only be made based on the ETPs´ legal documentation and will be subject to terms and conditions contained therein.
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions. The ETPs shown on this website are not available for sale in the U.S. or to a U.S. person.
I acknowledge having my legal residence in the selected location.
Please confirm the Terms and Conditions by clicking on “I agree”.
This website is for informational purposes only.
Information contained in this website is intended only to provide general and preliminary information to EU regulated firms such as Investment Intermediaries and Asset Managers. This information does not constitute an offer to sell or solicitation to buy any security, including shares of any Exchange Traded Products (“ETPs”).
An investment in the promoted ETPs may only be made based on the ETPs´ legal documentation and will be subject to terms and conditions contained therein.
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions. The ETPs shown on this website are not available for sale in the U.S. or to a U.S. person.
I acknowledge having my legal residence in the selected location.
Please confirm the Terms and Conditions by clicking on “I agree”.
This website is for informational purposes only.
This website is accessible to retail investors in the UK for informational purposes only. Leverage Shares does not directly distribute to retail investors. Retail clients should not rely on any of the information provided and should seek assistance from an IFA for all investment guidance and advice.
Information contained in this website is intended only to provide general and preliminary information and does not constitute any legal or investment advice, an offer to sell or solicitation to buy any security, including shares of any Exchange Traded Products (“ETPs”).
An investment in the promoted ETPs may only be made based on the ETPs´ legal documentation and will be subject to terms and conditions contained therein.
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions. The ETPs shown on this website are not available for sale in the U.S. or to a U.S. person.
I acknowledge having my legal residence in the selected location.
Please confirm the Terms and Conditions by clicking on “I agree”.
This website is for informational purposes only.
Information contained in this website is intended only to provide general and preliminary information to FCA regulated firms such as Independent Financial Advisors (IFAs) and Wealth Managers. This information does not constitute an offer to sell or solicitation to buy any security, including shares of any Exchange Traded Products (“ETPs”).
An investment in the promoted ETPs may only be made based on the ETPs´ legal documentation and will be subject to terms and conditions contained therein.
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions. The ETPs shown on this website are not available for sale in the U.S. or to a U.S. person.
I acknowledge having my legal residence in the selected location.
This website is intended for U.S. residents.
The content on this website is for informational purposes only and is educational in nature.
The material contained on this website is not intended as a recommendation to buy, sell or hold any security or to adopt any investment strategy.
This website is intended for U.S. residents.
The content on this website is for informational purposes only and is educational in nature.
The material contained on this website is not intended as a recommendation to buy, sell or hold any security or to adopt any investment strategy.