The global chip shortage is set to drag on. 4 experts predict how long it could last and how it could affect markets

Semiconductor microchip stock image

Semiconductors are some of the most critical components for the technology the underpins much of modern life.

Smartphones, PCs, electric vehicles, and even your fancy new refrigerator all use the chips to operate. When the supply of these vital products falls, it can become a big issue.

Over the last year, the semiconductor shortage has caused car companies to halt production, made getting graphics cards for PCs headache, and it’s led companies like Apple to face significant supply constraints in its rollout of new products.

Semiconductors are so important that they can even create national security issues when drones, fighter jets, and other critical military components are affected.

That’s one of the reasons why President Biden met with 20 top executives on Monday to discuss what can be done to fix the chip industry’s supply constraints and make sure something like this doesn’t happen again in the future.

President Biden has committed to helping the industry fix the semiconductor shortage with his new infrastructure bill. The $2 trillion infrastructure and jobs package will include some $50 billion for semiconductor research and production.

Still, despite help from the US government, experts say the global chip shortage is set to drag on. Below, Insider details how long four experts expect the crisis to continue and what it could mean for markets.

Ted Mortonson, Baird technology desk sector strategist

In an interview with Insider on April 6, Baird’s Ted Mortonson said he believes the global chip shortage will continue through the rest of the year.

The tech sector strategist said rising demand from the cloud sector, the 5G rollout, telecommunications firms, EV makers, and more is one of the main reasons for the shortage and noted that new capacity will need to come online to offset demand.

Mortonson highlighted semiconductor firms’ recent investments into capacity including Taiwan Semiconductor Manufacturing Co.’s $100 billion investment over the next three years that the company says will “increase capacity to support the manufacturing and R&D of advanced semiconductor technologies.”

However, the strategist said that despite new initiatives, much of the additional capacity won’t come online until the end of the year. Mortonson also noted that most semi companies have instituted “non-cancellable orders” and that lead times range from 15 weeks to over 50 weeks in some cases.

Mark Fields, former Ford CEO and senior advisor at TPG Capital

Mark Fields sat down with CNBC on April 9 to discuss the effects of the global chip shortage on the auto industry. Fields said auto manufacturers lost about 3 million units due to COVID in 2020 and he expects the chip shortage may be just as destructive.

“Through the first quarter, through various forecasts, it looks like about 700,000 units were lost…you can just do the simple math and you could see that the losses could approach the level of the Covid losses for last year,” the advisor said.

Fields also said automakers are trying to maximize their production value by focusing on selling their highest margin vehicles, but that it’s really a “game of whack-a-mole” given the breadth of supply constraints.

Fields added that the situation for automakers should get better in the second half of 2021, but the industry won’t fully recover until well into 2022.

Ganesh Moorthy, chief executive officer at Microchip Technology

Ganesh Moorthy, the CEO of Microchip Technology, spoke with CNBC on Monday about the chip shortage and said it’s the worst crisis he’s seen in the industry in 40 years.

The “imbalance between supply and demand has never been this acute in all my history in this industry,” the CEO said.

Moorthy also said that he believes supply constraints will last through the year and “most likely” continue into next year.

The CEO added that the chip shortage has been “brewing for some time” and said that it started with tariffs during 2018 which caused demand to fall. In response, Moorthy says many chip manufacturers leaned out inventory and idled some factories in response.

Then when the pandemic hit, a swath of new stay-at-home trends caused demand to skyrocket, leading to the shortage.

Moorthy said that it “takes six months of cycle time from when we say go to when production comes online full force,” so he expects the lack of supply to continue moving forward.

Anand Srinivasan, Bloomberg Intelligence analyst

Anand Srinivasan, an analyst with Bloomberg Intelligence, spoke with Yahoo Finance on Monday and said that the chip shortage could persist well into the second half of 2021.

The analyst said investors shouldn’t just be worried about their auto industry holdings due to the semiconductor shortage either.

“In the grand scheme of a $440 billion industry the auto business is only 8%, 9% of semiconductors,” the analyst said.

Srinivasan is “more worried about other areas where the impact could be larger and it affects a lot more people.”

He said a variety of products will be affected by the shortage but argued the two industries he’s most worried about are PCs and smartphones, which make up some 70% of semiconductor demand.

The good news for investors is that Srinivasan believes that the lack of supply will stretch out demand, rather than hurting it. “You’re not going to go out and buy a bicycle because you couldn’t get your Audi A4,” the analyst said.

This means that although production might be hurt in the short-term, over the long haul strong demand will remain, according to the analyst.

Read the original article on Business Insider

Apple’s stock price doesn’t reflect the 12% upside offered by its growing autonomous-vehicle ambitions, UBS says

Apple CEO Tim Cook
Apple CEO Tim Cook.

Apple’s current stock price doesn’t reflect the tech giant’s budding autonomous-vehicle ambitions, according to a team of UBS equity analysts led by David Vogt.

The analysts have a price target of $142 for Apple, a roughly 12% gain from current levels. In a recent note, the analysts said their price target reflects Apple’s autonomous vehicle opportunity.

Apple has been developing autonomous vehicle technology for years but has never confirmed it’s working on a car. In a recent interview, CEO Tim Cook hinted that Apple was working on an electric-vehicle project – but said many of Apple’s ideas “never see the light of day.”

But UBS noted that there are increasing signs that Apple is working on autonomous vehicle technology. For example, Apple was recently granted a patent for VoxelNet, a technology that could be used for AVs, the analysts said.

“Although Apple has not made a formal announcement yet, we believe the series of patents granted around AV further demonstrates Apple is allocating significant resources to projects that have ‘optionality’ but not reflected in the shares,” they said.

UBS also noted that Apple’s Voxel patent file makes a brief mention that the technology involves processors that simulate a vehicle making a turn, a further hint that the company is diving into self-driving cars.

“Although the application could have a myriad of uses, we find the use of the word ‘vehicle’ in the patent claim along with prior research published by Apple as important clues around the company’s commercial intentions,” said UBS.

Apple rose as much as 1.6% on Thursday, though the stock is down roughly 2.5% year-to-date as investors have taken profits from mega-cap technology names that dominated in 2020.

“Apple currently trades at 28x NTM P/E, in-line with its trailing one year average,” said UBS. “However, we believe a sum-of-the-parts (SOTP) framework is more appropriate going forward given auto optionality. As such, our price target of $142 reflects not only a value for Apple’s “Core” of ~$128 but also an evenly-weighted probability value of Apple’s auto opportunity ($14/share) in our SOTP analysis.”

Read the original article on Business Insider

US stocks close mixed as stimulus optimism clashes with new virus strain

nyse open floor traders mask.JPG
  • US stocks closed mixed on Tuesday after Congress passed a multitrillion-dollar spending bill that includes $900 billion in new stimulus.
  • The package, which also funds the government through September 30, includes $600 direct payments, $300 in additional federal unemployment benefits, and aid for small businesses. 
  • The fresh fiscal support locked horns with concerns around a new strain of COVID-19 in the UK. The variant’s emergence prompted several European nations to enact travel restrictions on UK visitors.
  • Oil futures fell as investors viewed the new virus strain as a risk to near-term energy demand. West Texas Intermediate crude fell as much as 2.4%, to $46.60 per barrel.
  • Watch major indexes update live here.

US equities closed mixed on Tuesday as investors weighed Monday’s stimulus vote against the emergence of a new coronavirus strain in the UK.

Congress approved the measure Monday night after months of negotiations over additional fiscal support. The bill, which includes $900 billion in new stimulus, funds the government through September 30. The package also includes $600 direct payments, $300 in additional federal unemployment benefits, and funds for the Paycheck Protection Program.

Here’s where US indexes stood at the 4 p.m. ET market close on Tuesday:

Read more: BANK OF AMERICA: Buy these 16 medtech stocks with strong fundamentals that are set to soar post-pandemic

The White House has indicated President Donald Trump will sign the bill. Economists have largely backed additional fiscal support, though the slowed pace of economic recovery and rising COVID-19 cases still present sizeable risks.

“The $900 billion fiscal aid package is months late and will likely fall short of what is needed to prevent a rough winter, but it’s better than nothing,” Gregory Daco, chief US economist at Oxford Economics, said, adding the measure will “partially buffer the current economic slowdown” while vaccines are distributed.

Enthusiasm toward the new fiscal support was somewhat offset by reports of a new COVID-19 variant in the UK. Several European countries implemented travel restrictions on UK visitors to slow its spread.

Fears were somewhat allayed later in the day after public health experts said Pfizer and Moderna’s COVID-19 vaccines are likely effective against the new strain. Still, the new restrictions and virus fears threaten to tamper down on already weakened economic activity.

Read more: Brooke de Boutray has beaten 99% of her peers over the last 5 years and runs a fund that is up 148% in 2020. She shared with us 4 stocks she’s most bullish on heading into 2021.

Economic indicators also flashed some warning signs. US consumer confidence unexpectedly fell to a four-month low this month as surging COVID-19 cases and stricter lockdown measures offset a slight improvement in Americans’ long-term outlooks, Conference Board said Tuesday. The organization’s sentiment gauge fell to 88.6 from 92.9, while economists expected a jump to 97.

The tech and real estate sectors outperformed, while communications-service and energy stocks lagged.

The Nasdaq composite index was lifted by Apple, which extended a late Monday climb following a Reuters report that the iPhone maker aims to produce electric cars by 2024. The news also boosted lidar-sensor producers, as Apple reportedly plans to partner with such firms for its vehicle systems.

Peloton soared after the company inked a deal to buy exercise-equipment company Precor for $420 million. Peloton plans to use Precor’s facilities to boost its manufacturing capacity and cut down on its order backlog.

Read more: A fund manager at JPMorgan’s $1.9 trillion asset management arm breaks down the 6 high-conviction bets he’s making to stand out from the crowd next year – and shares the 2 biggest risks on his radar

Bitcoin rose back above $23,000 after plunging the most in nearly a month on Monday. The cryptocurrency faced pressure after the US Treasury proposed rules that would require exchanges to collect information from users who transfer more than $10,000 to a crypto wallet.

Spot gold erased early gains and fell as much as 1%, to $1,858.97 per ounce, at intraday lows. The US dollar strengthened against all of its Group-of-10 peers and Treasury yields dipped.

Oil prices fell amid fears that the new COVID-19 strain will further cut into demand. West Texas Intermediate crude dropped as much as 2.4%, to $46.60 per barrel. Brent crude, oil’s international benchmark, declined 2.7%, to $49.56 per barrel, at intraday lows.

Now read more markets coverage from Markets Insider and Business Insider:

Brian Barish’s mutual fund crushed the market for 8 straight years and is in the top 2% after reinventing value investing for the digital age. Here’s how they pulled it off.

SoftBank aims to raise up to $525 million for its own blank-check company

Treasury Secretary Mnuchin expects direct stimulus checks to be released next week, says he ‘couldn’t be more pleased’ about deal

Read the original article on Business Insider

Apple’s market value grows by $102 billion after report says the company aims to produce electric cars by 2024

Tim Cook
Apple CEO Tim Cook.

  • Apple climbed as much as 4.7% on Tuesday following a Reuters report on Monday afternoon that said the tech giant aimed to produce electric cars by 2024.
  • The company wants to compete in the electric-vehicle market with battery innovations to improve vehicle safety, packaging, and range, according to the report.
  • The news, published less than an hour before markets closed, lifted Apple to a 1.2% gain on Monday.
  • Apple’s market cap grew by more than $102 billion at intraday highs.
  • Watch Apple trade live here.

Apple gained 4.7% on Tuesday following a Reuters report on Monday that said the iPhone maker planned to produce electric cars by 2024.

The tech giant aims to compete in the rapidly expanding electric-car market with new battery technologies to improve vehicles’ safety and range, according to the report. That could “radically” cut down on battery costs, a source familiar with the plans told Reuters.

Apple’s market value grew by more than $102 billion at intraday highs.

Read more: Brooke de Boutray beaten 99% of her peers over the last 5 years and runs a fund that is up 148% in 2020. She shared with us 4 stocks she’s most bullish on heading into 2021.

The report, published less than an hour before markets closed, lifted Apple shares to a 1.2% gain on Monday. Tesla, which would likely serve as Apple’s greatest competitor in the automotive sector, extended losses and closed 6.5% lower.

Sources told Reuters that Apple planned to partner with other companies for some vehicle systems. Suppliers of lidar sensors rallied in early trading. Apple developed its own lidar sensors for the iPhone 12 Pro and iPad Pro models.

The report revived discussions of Apple’s Project Titan automotive plan after layoffs and a leadership shakeup spurred rumors that the project had died.

The company plans to incorporate a “monocell” design to concentrate battery cells and create more space in battery packs by doing away with various storage pockets, Reuters reported. The layout would allow for denser battery units and a longer range than layouts with more loosely packed cells.

Apple is also experimenting with lithium-iron-phosphate battery chemistry, which could be less likely to overheat than lithium-ion batteries, Reuters reported.

Read more: BANK OF AMERICA: Buy these 16 medtech stocks with strong fundamentals that are set to soar post-pandemic

But even Apple’s expertise in handling massive supply chains would likely be tested by vehicle production. Tesla spent nearly two decades building cars before turning a steady profit. Apple would need to collaborate with a slew of partners and venture into manufacturing processes not used for its existing hardware.

“If there is one company on the planet that has the resources to do that, it’s probably Apple. But at the same time, it’s not a cellphone,” a person who worked on Project Titan told Reuters.

Apple closed at $128.23 on Monday, up 76% year-to-date. The company has 75 “buy” ratings, 18 “hold” ratings, and three “sell” ratings from analysts.

Now read more markets coverage from Markets Insider and Business Insider:

SoftBank aims to raise up to $525 million for its own blank-check company

Treasury Secretary Mnuchin expects direct stimulus checks to be released next week, says he ‘couldn’t be more pleased’ about deal

A Lazard fund manager overseeing $2 billion lays out the 6 world-changing trends shaping his latest fund – and explains how he plans to capitalize on each

AAPL

Read the original article on Business Insider

Peloton slides 3% after Apple reveals its competing fitness service will launch on December 14

Peloton Bike smart stationary bike
Peloton Bike

  • Peloton fell as much as 3% on Tuesday after Apple revealed its rival Fitness+ service will debut on December 14.
  • The service allows iPhone, iPad, and Apple TV owners to access various exercise classes through their devices.
  • Fitness+ will cost $9.99 per month, undercutting Peloton’s cheapest $12.99-per-month subscription.
  • Peloton CEO John Foley said in September that Apple’s move into the segment is a “legitimization” of the industry, adding that Peloton can still stand out thanks to its exercise hardware.
  • Watch Peloton trade live here.

Peloton shares tumbled as much as 3% on Tuesday after Apple announced its rival fitness service will launch on December 14.

Apple’s service, named Fitness+, allows iPhone, iPad, and Apple TV users to access various exercise classes. Health statistics can be measured through Apple Watches and synced with the courses in real-time. Apple’s offering is the first major competitor for Peloton after the latter dominated the sector since debuting its first stationary bike in 2014.

Fitness+ undercuts Peloton’s own subscription service, coming in at $9.99 per month or $79.99 per year. Peloton’s offering, which can be accessed without one of its fitness products, starts at $12.99 per month.

Read more: A stock picker at a $558 billion firm lays out 2 under-the-radar trends disrupting the future of transportation- and explains why Slack and Virgin Galactic are perfect fits for his portfolio

Peloton pared losses after opening lower. The company’s shares are up 319% year-to-date.

Peloton CEO John Foley said in September that Apple’s move into the segment is a “legitimization” of the fitness service industry. He added that Peloton stands apart from the iPhone maker in that it pairs fitness classes with its own exercise hardware.

“We think the special sauce, the magic, is our connected platforms, and in order to work out at home you need a stationary bike if you’re going to be biking, you need a treadmill if you’re going to be running,” Foley said in a September analyst presentation.

Fitness+ joins other services including Apple TV+, Apple Music, and Apple Arcade as part of the tech giant’s services push. Apple’s services arm has steadily grown in recent years and helped offset slowing iPhone sales. The company revealed a bundle deal named Apple One in October, and the option that includes Fitness+ comes in at $29.95 per month.

Peloton traded at $115.57 per share as of 10:35 a.m. ET Tuesday. The company has 48 “buy” ratings, four “hold” ratings, and one “sell” rating from analysts.

Now read more markets coverage from Markets Insider and Business Insider:

US stocks slide as investors balk at stimulus delay and surging COVID-19 cases

Tesla’s latest stock sale is a smart move on the heels of a 667% year-to-date rally, analyst says

Goldman Sachs says buy these 25 stocks it expects to pay big dividends that will keep growing over the next decade

PTON

Read the original article on Business Insider