Jeff Brown’s Prediction Series: The Next Stage of the “Tech Shock”

Van’s note: Van Bryan here, Jeff Brown’s longtime managing editor. At the end of every year, I sit down with Jeff to discuss his biggest predictions for the coming year. Remember, you can always catch up on earlier editions in this series by going here.

Today, I sit down to ask Jeff about the ongoing semiconductor shortage, what he refers to as the “Tech Shock.”

How bad is it? What happens next? And how can investors profit?

All the answers, and more, below…

Van Bryan (VB): Jeff, let’s discuss the semiconductor shortage, what you refer to as the “Tech Shock.” Can you bring us up to speed?

Jeff Brown (JB): I’m sure most of us have heard the term “semiconductors.” Sometimes they’re referred to as “computer chips” or just “chips.” And we typically associate them with smartphones and computers.

But semiconductors are the “brains” of all modern electronics. And the truth is that semiconductors are critical to our daily lives. Whenever we wash our clothes, turn on the air conditioning, stream our favorite show, or drive to work, we have semiconductors to thank.

And what’s happened in 2021 is that we simply can’t produce enough of these semiconductors to meet demand. And we can see the results for ourselves.

The latest gaming consoles like the PS5 and the Xbox Series X are virtually impossible to buy. I would know. I’ve been trying to buy one for my son for months.

New appliances are either not available or require several weeks to deliver. Earlier this year, thousands of unfinished Ford pickup trucks were parked at the Kentucky Speedway in Sparta. These trucks were there because the manufacturer couldn’t get the necessary components to complete the vehicles.

And you’re right – I’ve referred to this event as the “Tech Shock.” That’s because it’s reminiscent of the “Oil Shock” of the early 1970s. Some of us may remember the effect of that event. Americans waited for hours to pay inflated prices for rationed fuel.

We’re seeing the same thing play out with semiconductors.

VB: How bad has it gotten?

JB: I’ll share one detail that gives us a pretty good idea.

The “lead time” for semiconductors is the period between ordering a chip and its delivery. Historically, this might have been 10 weeks or so. But in October, the time from order to delivery was 21.9 weeks, on average.

It’s gotten so bad that even Apple is feeling the effects. The company originally planned to produce 90 million iPhone 13s this quarter. But Apple is expected to fall short of that goal by about 10 million units. They just can’t source the chips.

Having worked at an Apple supplier myself – NXP Semiconductors – the one thing that you don’t want to do is let Apple down. This leads me to believe the shortage is worse than many believe.

VB: Where do you see this going in 2022?

JB: My longtime readers already know this, but I worked as a technology executive in the semiconductor industry for years. This sort of thing has happened before. And it usually plays out in three phases…

Phase One is the shortage phase. The industry simply can’t produce enough semiconductors to meet demand. We’re already there, clearly.

Phase Two is the building phase. At this point, the industry reacts. They build more semiconductor fabrication facilities (fabs) to meet the new demand.

And in Phase Three we actually see a supply glut. We overbuild manufacturing capacity and supply starts to outpace demand.

We’ve now entered Phase Two. TSMC (Taiwan Semiconductor Manufacturing Company) is already committed to a major plant in Arizona. We have GlobalFoundries planning to break ground on a new facility in upstate New York. Even Intel is beginning to spend $20 billion to build its new foundry business.

And there were some very smart policies enacted to support this growth. In June, the U.S. Senate passed the CHIPS for America Act or CHIPS Act. This law approved $52 billion in spending to support U.S. semiconductor manufacturing.

I’ll skip ahead to my next prediction along these lines.

I expect 2022 will be the year we see these funds deployed to help bring semiconductor manufacturing back onshore.

But we need to remember that these facilities can’t be built overnight. They take years to plan and build. So the semiconductor shortage – the “Tech Shock” – isn’t going to be fixed right away. This is something we’ll be dealing with in 2022 and perhaps into 2023.

VB: So you see semiconductor manufacturing coming back onshore. This sounds like your “American Manufacturing Renaissance” prediction. Could you expand on that?

JB: COVID-19 and the economic lockdowns taught us an important lesson. They showed us that our global supply chains are fragile. We hardly notice it when things are working well. And so for decades, America shipped much of its manufacturing capacity offshore. Semiconductors are a perfect example of that. And of course, we’re now seeing the effects when it goes wrong.

What’s going to happen is a reversal of that trend. Manufacturing will come back onshore. Thanks to automation and machine learning, the cost to manufacture in the United States is very comparable to what it costs in mainland China.

And the advantages of having our manufacturing base close to home far outweigh whatever small cost advantage there is from manufacturing overseas. I’ve referred to this idea as the “American Manufacturing Renaissance.”

VB: And this will apply to semiconductors?

JB: It will. Semiconductor manufacturing is coming back to the United States. But it won’t just be semiconductors.

This trend will apply to virtually any good we need. And it will be accomplished thanks to technologies like additive manufacturing, or 3D printing, as well as artificial intelligence and machine learning.

So imagine you place an order for a specialized component on Sunday night. That item would be 3D-printed overnight, put onto a self-driving semi-truck, and delivered to the front door of your factory.

That’s a hypothetical scenario, but now imagine it at scale. It’s how we make our economy “antifragile,” to borrow a term from author Nassim Taleb.

VB: You had a prediction for 3D printing for 2021. You predicted that the world’s first 3D-printed rocket would go into orbit this year.

JB: That’s right. And that’s absolutely going to happen. A company called Relativity Space had originally planned to launch its 3D-printed rocket, the Teran 1, into orbit this summer. But now it looks like the launch will be scheduled for some time in early 2022.

That will be exciting to watch. And when it happens, it will be an incredible use case for this technology. And it will demonstrate that we can manufacture complex components and items onshore.

The technology for this manufacturing renaissance is already here. And we’re already seeing some early adopters. The next phase is the acceleration phase. That’s where we’re heading in 2022.

VB: And when you look into 2022, what do you think is the best way for investors to profit from this trend?

JB: In Exponential Tech Investor, we already have two incredible 3D-printing companies in our model portfolio. And when I think about beneficiaries of the American Manufacturing Renaissance, one company comes to mind.

It’s a small-capitalization semiconductor company that has some incredible technology. And I believe it will be a beneficiary of that $52 billion CHIPS Act.

Out of fairness to my paid-up readers, I won’t give the name here. But I did get the chance to tour the company’s facility in upstate New York earlier this year, and I came away even more convinced of the investment potential here.

[Van’s note: To see Jeff’s full presentation on this small-cap tech stock, go right here.]

Jeff (second from left) and his team touring the semiconductor fabrication facility earlier this year.

VB: Thanks for your time, Jeff.

JB: Of course.

P.S. Tune in tomorrow for the next installment in Jeff Brown’s 2022 Prediction Series. I’ll ask Jeff about ESG (Environmental, Social, and Governance) investing, when he thinks we’ll see an active nuclear fusion reactor, and Jeff will reveal his biggest prediction for quantum computing. You won’t want to miss it.

And as Jeff shared today, the Tech Shock isn’t going away anytime soon. That spells an opportunity for savvy investors. To get Jeff’s full Tech Shock profit plan, go right here.

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