In 2020, the global chip shortage began, and the demand for circuits was far above supply. This resulted in a global chip shortage affecting over 160 industries worldwide. The shortage has led to a significant increase in the prices of chips, which has probably emerged due to the coronavirus outbreak, the China-US trade war, and the Russia Ukraine crisis.
Several investors have started to scalp the commodity due to the price fluctuation, which is heading in the upwards direction due to the continuous rise in demand but a fall in supply. In our article, we will learn if the global chip shortage is a favourable investment opportunity to investors.
Demand for chips currently
Chips are a tool that we use in our everyday lives in almost every electronic item that we use, yet, we have probably never seen one due to its negligible physical existence. From phones and cars to computers and smartwatches, you can find these chips in almost everything and anything. Every electronic activity that takes place in today’s world is heavily dependent on the presence of these chips as it consists of several circuits that help the device in operating.
However, all major companies in different industries have been facing a significant shortage in chips that have resulted in slowing down the production process. In fact, in 2021, many car manufacturers had to shut down their productions as they could not get hold of chips to serve the automobile production.
The four major causes of the global chip shortage
1- Electronic automobile growth
The last few years have witnessed substantial growth in the electronic automobile industry, where almost all car companies are shifting to produce cars driven via electricity. Advancing features like cruise control and automatic stoppages also require chips causing the shortage.
2- The coronavirus pandemic
The pandemic has a major role to play in the disruptions of the chips’ supply chain management. In fact, after the virus outbreak, the automobile industry thought that demand for cars would fall, which is why they cut back on their processing orders. However, customer demand for vehicles actually increased not just in the automobile sector but also for all electronics, including laptops, chrome books, smartphones, webcams, and equipment necessary for a work from home environment. Going back to chips suppliers, it was known that chips were not available as much as the demand was, drastically impacting the demand and supply scale of chips.
3- Fixed supply
Since only a fixed volume of semiconductors can be manufactured at a particular time, it hardly ever meets the demand to the required level. All semiconductors and related factories are very expensive to set up. Hence, the shortage in the entire industry results in a lack of production capacity. There is also a lower margin in chips which might fall further in the coming years. When chips depreciate very quickly, this leads to severe supply issues.
Is the chip industry a good investment?
Well, the world is not always going to function on excessive demand of chips. The shocks from the pandemic, trade war and current crisis in Europe are going to come to an end, which will result in the chips industry going back up. Supply shocks in the economy are natural, and they subside as they will now, too, making the chips industry still a relevant and good investment area.
Since a technology supply chain is bound to affect businesses other than technology, it sends investors a positive outlook about the semiconductors supply shocks blend in. Opportunities to invest in companies that are innovating and bringing in advancement are very high as they make overall processes resilient, effective and efficient. More and more investors every day are betting on technology backed companies as they are able to integrate their supply chains better than anybody else in the market.
Conclusion
Overall, the chips industry will revive and come to a better place than it currently is. As the pandemic related work from home supplies like webcams, laptops, smartphones and more will face a decrease in demand, the other industries will be able to make better use of the semiconductors in their products. Factories are being equipped with better installations so that the production capacity is increased, and hence, it is an excellent opportunity for investors to make use of the global chip shortage as an investment because the future looks optimistic.
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