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Silicon Valley is the birthplace of American technology. Giants like Google and Apple have become the face of California’s disruption hub. But long before we put Google searches on our iPhones, Silicon Valley got its name from creating the world’s most important industry: computer chips.
Silicon Valley is the birthplace of American technology. Giants like Google and Apple have become the face of California’s disruption hub. But long before we put Google searches on our iPhones, Silicon Valley got its name from creating the world’s most important industry: computer chips.
Computer chips, also known as semiconductors, are the “brain” of electronics. Nowadays the whole world runs on semiconductors. Without them there would be no iPhone, Amazon web store or online messaging apps.
Temperature sensors in air conditioning systems are powered by tiny microchips. Rice cookers cook rice perfectly because built-in semiconductors control the heat. The chip in the pacemaker sends electrical impulses to the heart so that it beats regularly.
From flying over the oceans to driving our smartphones when landing; Streaming of films for online purchase of goods; From checking out groceries to paying for dinner with your credit card: every modern system is operated with chips.
At Walmart, you can’t take a packet of microchips off the shelf. However, the latest cameras, televisions, washing machines, ovens and refrigerators are made “intelligent” by Semis. 300 billion computer chips were sold in 2019. That’s about 40 for every man, woman, and child in the world. And chipmakers grossed $ 450 billion:
Source:
RiskHedge
Almost all of human advancement in the past 60 years has been driven by the performance of computer chips. Remember, chips are the brains of computers. And the more “brain cells” (transistors) a chip has, the faster it is.
The NASA supercomputer that sent Neil Armstrong to the moon in 1969 had 2,000 transistors. But understand that: There are 11.8 billion brain cells on the chip in the new iPhone! Remember, modern chips are no bigger than your thumbnail:
Source:
Beebom.com
All of the technological advancement in our lives has been made by chip makers figuring out how to put more transistors on these microchips. We can do things on our pocket-sized smartphones that IBM mainframes, which are larger than a double-decker bus, could never do.
In short, semiconductors are the most important goods the world has ever known. They are the “fuel” for every modern technology. And they’re also key to any future disorder you can think of.
Self-driving cars, artificial intelligence, computer vision, space tourism, genome medicine. You name it, these world changing disruptions ALL need faster chips.
All technology revolves around this disruptor
You may already know the chip giant Nvidia (NVDA). Nvidia, Qualcomm, and AMD are often referred to as “chip makers,” but that’s a misnomer. These companies don’t actually make semiconductors. They’re more like architects creating blueprints and intricate designs for the chips.
When it comes to the physical manufacture of the chips, they hold the reins Taiwan Semiconductor Manufacturing Company (TSM). TSMC is the world’s largest semiconductor manufacturer. Today around 70% of the first-class chips pass through the factories. And the list of customers reads like a “Who’s Who” in the world of technology.
The chips have been manufactured in every Apple iPhone and Mac since 2014. The chips have been manufactured by Nvidia since the 1990s. Giants like Qualcomm, Google and AMD pay TSMC billions of dollars a year.
Most investors have never heard of TSMC, probably because it doesn’t make chips of its own. It’s a dedicated manufacturer that only makes chips for well-known technology giants. Most of TSMC’s factories are located on the island of Taiwan. My contact John told me that his work in Hsinchu is the most incredible building he has ever set foot in.
Once you have passed the security check, you must put on a protective suit with masks and gloves. Then you go to an “air shower”. It’s a special chamber that you blow up with filtered air to remove particles like dust or hair.
The semiconductors TSMC makes are so fine that a single speck of dust can ruin them. His so-called “clean room” has to be a thousand times cleaner than outside. John said the air was so sterile that you had to drink gallons of water to stay hydrated.
Most noticeable was how he described TSMC’s factory robots:
“A monorail-like rail attached to the factory’s ceiling loops. The shuttles that go around overhead carry partially finished chips, some of which are worth more than solid diamonds.
Together, these robots travel 400,000 km per day. It’s the equivalent of going around planet Earth 10 times! “
How TSMC became the world’s leading chip manufacturer
TSMC recently stole Intel’s crown as the world’s leading chip maker. Keep in mind that all of the advancement in technology has been driven by chip makers cramming more transistors onto these tiny silicon wafers. This process is the closest thing to magic in the real world.
A transistor is engraved into the chip in Apple’s new iPhone every 5 nanometers. That’s five billionths of a meter or 1,000 times smaller than a red blood cell.
Chip manufacturers refer to the task of producing ever faster chips as “recipes”. Making chips is like baking cakes. You can have all of the right ingredients (or machines) but you need to find the right mix to make it work.
Intel was a pioneer in chip manufacturing as early as 1968. Until recently, it always “cooked” the recipe properly before anyone else. This allowed it to continue to produce the fastest chips in the world.
However, Intel was four years late with the latest chip innovation, so TSMC was able to skip it for the first time. TSMC is the only chip manufacturer in the world today that is able to produce high-end chips. And that’s what made it the world’s most important technology company.
Think about it: if Apple and Nvidia need new chips, who will they call? It can only be TSMC. These companies spent around $ 550 million developing their latest chips. When you put that kind of money into design, you will only hire the best chip manufacturers to build them. TSMC is like the sun that sits at the center of the tech universe. Any company that relies on faster chips is turning to it now.
Building an uninterrupted realm
As chip manufacturing becomes more complex and expensive, TSMC leaves its competitors in the dust.
In 2001, 30 chip manufacturers competed for the No. 1 crown. Today, TSMC is the only chip manufacturer in the world capable of producing top-quality chips. Intel and Samsung are the only ones left, and both are 1-2 years back.
TSMC’s only problem is figuring out how to make more chips. Apple, Nvidia, AMD, and a few others have booked out all of their capacity by the second half of 2021.
I’ve been following this disruptor for a couple of years and he is one of the most consistent performers you have ever seen. Sales have increased 15x since 2000, and the business has grown vertically over the past decade:
Source:
RiskHedge
Remember, semiconductors are the “fuel” of our modern world. Any future disorder that you can think of is due to ever faster chips. As the main supplier of these chips, TSMC is now the most important technology company in the world.
I call it an “forever share”. Buy the stock today and lock it in for 10 years. Along the way, watch how it puts together your initial investment in a small fortune.
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