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Chip Stocks Rally on Semiconducter Funding Bill News Despite Ominous Forecast

20 July 2022

Chip stocks rallied on Wednesday on news that the Senate is moving closer to passing a $50 billion subsidy for U.S. chip manufacturers, despite the long-term red flags and a warning from ASML Holding NV, the Netherlands supplier of key equipment to chip makers.

“The PHLX Semiconductor Index SOX, 2.42% outpaced broader market gains Wednesday, rising as much as 2.5%, while the S&P 500 index SPX, 0.66% rose as much as 1%. For the year, the SOX index is still down 28%, compared with a 17% decline in the S&P 500.

“The advance in chip stocks comes despite a reduced forecast from ASML Holding NV ASML, 3.06% ASML, +3.38% early Wednesday. The Netherlands-based chip-equipment maker said it expects about 10% revenue growth for the year, down from a forecast of 20% growth in its previous earnings report. In 2021, the company brought in 18.6 billion euros in sales.”

Marketwatch’s story cites some of the longer-term problems chip makers face.

“Yellow flags have been flying in the chip sector for months, with analysts warning that the record sales of recent years could lead to a supply glut after the pandemic-influenced shortage of semiconductors eased. Concerns have increased since Micron Technology Inc. MU, 0.93% forecast quarterly sales more than $1.5 billion lower than Wall Street estimates, advancing the argument that chip customers may have double- or triple-ordered products during the pandemic.”

Conspicuously missing from these stories is the impact of the Ukraine-Russia war. Ukraine supplies over 90% of semiconductor neon gas for the U.S. and 40% of krypton and 30% of xenon over the world. About 45% of the world’s palladium comes from Russia.

Prices for these commodities were rising well before the hostilities, and it’s going to get worse as supply chains are directly and indirectly interrupted by restrictions and sanctions arising from the conflict. Prices for these commodities skyrocketed in the original 2014 Russia-Ukraine conflict and slowed the chip industry dramatically.

Ultimately this shows the inefficiency of proof-of-work. It is inefficient in terms of energy and its environmental impact, but also in its inexhaustible appetite for hardware.