💼 CHIPS Act

briefcase | invest smarter | issue #101

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💾 Let's get CHIPy

The future of the global economy can be largely explained through a company many of us have never heard of: TMSC. Who is TMSC? The world's largest manufacturer of advanced chips.

No, not that kind of chip. Companies like TSMC, Intel, and NVidia, manufacture small silicon chips that contain integrated circuits. These are used in almost everything, from cars to satellites to military equipment to even the device you're on now.

Chips are so important to our global economy that many call them, as well as the rare earth materials needed to manufacture them, a form of critical natural resource in need of protection.

Protection requires legislation, and a major piece of law just passed doing exactly that.

The CHIPS Act

In July Congress passed the CHIPS Act, which includes $53B in incentives and subsidies to dramatically increase domestic chip manufacturing. Currently, only 12% of global chip manufacturing occurs in the U.S.

Source: Statista

But this will change with the CHIPS Act. So why did it get passed? Because of...

Ruffled feathers

Why so chippy? Taiwan.

China has always claimed Taiwan to be part of its own territory, whereas Taiwan, the U.S., and other countries violently disagree. It was always been feared that there is a possibility of a Chinese invasion of Taiwan, which is the headquarters of TSMC.

The Secretary of State Antony Blinken said a few weeks ago that China's plan to annex Taiwan is "on a much faster timeline" than originally predicted.

Taiwan-based TSMC accounts for 54% of the chip market (and 90% for advanced chips), meaning a risk of invasion is also a risk to the global technology market.

You might even say, all our chips are in one basket.

According to Glenn O'Donnell, research director at Forrester:

"If China would invade Taiwan, that would be the biggest impact we've seen to the global economy — possibly ever."

And, tensions are increasingly circuit-breaking between China and the U.S., leading to increased decoupling of the two countries. The U.S. has gone as far as banning the sale of advanced chips to China. As such, many have even gone so far as to call it an economic cold war.

This deglobalization has a number of knock-on effects, but the major one is that the U.S. must now onshore production of goods like chips instead of importing them.

Once you pop, you can't stop

So what do these latest developments mean for real estate watchers? More factories stateside, enabled through government subsidies, mean that many real estate markets will see a boost in employment and housing prices as a result.

Ohio - Intel is building 2 factories in Licking County at a cost of $20B.
New York - Micron is building a factory near Syracuse, costing upwards of $100B.
Texas - Samsung is building a $17B factory in the Lonestar state. Further, Texas Instruments is opening a $30B semiconductor campus north of Dallas that includes a total of 4 factories.
Virginia - Micron is massively expanding its facility in Manassas.
Arizona - Not to be left out of the party, TSMC is building a $12B factory in Arizona, and plans on at least 3 more.
Berkshire+TMSC=😍: Buffett money is the smart money, and Berkshire Hathaway just invested a whopping $4B in TMSC. Maybe the oracle sees the long-term benefit of bringing chip manufacturing stateside.

In a time where 'factory towns' have been on the decline, the above expansions are welcome news.

That said, the decoupling from China and onshoring chip manufacturing does have one negative downside: It increases inflation because things just cost more here. But we'll chip away at that story another day.

Despite this, the new wave of construction will be a boon for dozens of communities across the country. According to PBMares:

As a result of the CHIPS Act, communities across the country are already approving multi-million dollar projects to build and improve roads, water infrastructure, and new buildings. Some states are also paving the way for expansive investments in new semiconductor factories.

Specific to real estate, UBS concludes that:

It is likely that construction of these facilities will lead to increased demand for residential (for-rent and for-sale), industrial and retail real estate to accommodate the needs of construction workers, development and operating companies and ultimately the full time employees of these facilities.

Chip sales are expected to double to a cool $1T over the next decade, fueling calls for more manufacturing plants and infrastructure.

So, this is just the start. The total investment required to bring semiconductor production home is about $1T, plus upwards of $125B a year after that.

So What? Employment and population growth are catnip for real estate investors, and the paradigm shift in chip manufacturing will certainly positively impact those markets that are seeing new anchor employers setting up shop.

Weekly Real Estate Stories

🤯 GDSpree: Estimates for Q3 GDP growth are now at an astonishing +4.4% following fears of negative growth — Atlanta Fed

🔮 Predictions: NAR chief economist says US home prices won’t experience a major decline and could rise slightly in 2023 — NAR

💰 JPMor-homes: JPMorgan is earmarking $1B to buy some single-family homes — TRD

🏖️ Long Weekend: The four-day workweek is now standard among 40% of companies according to EY — CNBC

🏘️ ADUseful: Former Airbnb founder starts an ADU startup to help bring gentle density to cities — Inman

🛠️ Renovations: Costs of materials for renovations are finally coming back down to earth, except in the luxury market — TRD

📈 Demand Up: As mortgage rates take a slight dip below 7%, homebuyer demand picks up — Inman

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...According to a Doritos bag size I’m a “Family.”

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Written By Brad Cartier