Technology is changing rapidly and because of this, it can both a be a great place to invest your money and a dangerous one if you are not following the current trends. The titans of the industry today may soon turn into giants of the past. International Business Machines (IBM) and Cisco (CSGO) are both prime examples of this. Once seemingly unstoppable growth beasts they are now only a shell of their former selves. They will likely stick around for a long long time, but their best days are certainly behind them for now.
Next up? Intel (INTC).
Now, of course this is just my very humble opinion. I am by no means shorting the stock or wishing for their downfall. In fact I held the stock for over a year back 2015… Why?; Because they had grand plans to (finally) enter the mobile market. Interestingly enough they had an entire team dedicated to this in my home country of Denmark. But unfortunately not long after, Intel threw in the towel and I immediately sold my entire position. The team in Denmark got demolished and Intel’s dreams of powering your next smartphone died with it.
The challenge lies within the architecture of the microchip. Intel is using the x86 platform – the very same that powers your laptop or desktop computer, whether that be running Windows, MacOS or Linux – It is the same architecture those machines have used since the 1980’s and a good reason for why that game you played back in 1998 still plays on your machine today. But the platform is rather complex, inefficient and its progress have stagnated over the last few years.
Because of this, Intel has experienced untold delays in moving their manufacturing process from 14nm down to 10nm and beyond. Aiming for smaller nanometers is important as when transistors get tinier and more tightly packed, electrons don’t have to travel as far when moving between them, saving time and energy. Intel has blamed their stumble on being too ambitious, issues with power consumption/spilling and manufacturing limitations.
Meanwhile the ARM architecture – a much simpler technology – has quickly moved from 10nm in 2016 to 7nm in 2018 and even 5nm in late 2020. Now manufacturers like Taiwan Semiconductor Manufacturing Company (TSM) and Samsung (005930) are already working on a 3nm and 2nm process. Although not directly comparable to the x86 process it does bode for a significantly faster pace of innovation.
Professor Steve Furber, the founder of the ARM project back from the 1980’s, states in an interview that when measuring the power consumption of their first working chip, the multimeter was reading zero. Allegedly he had forgotten to connect the power supply, yet the chip was still running because of its incredible low power consumption – powered entirely from signal inputs.
In a world powered by desktop computers, being power efficient was nothing more than a nice side benefit. But as our devices increasingly turned portable, ARM became the top choice for powering our Nokia and Ericsson phones, then our Blackberries and ultimately any smartphone you might know of – From every Android device to every iPhone ever produced. Due to this rapid innovation in the smartphone field and the recent stagnation of x86 – the time has now finally come for ARM to take on laptops and soon also high end desktop workstations.
In 2020 Apple (APPL) released their first batch of ARM-based laptops powered by their own custom M1 chip. This chip is manufactured by Taiwan Semiconductor Manufacturing Company [TSMC] – the market leader in ARM-based technology. The M1 chip blew everyone away with its performance and incredible battery efficiency and for the first time it became as clear as day, that the best days of x86 are behind us. In fact the performance of the M1 chip is so good that Apple’s cheapest ARM-based offering – The MacBook Air ($999) is outperforming their highest end Intel-based MacBook Pro 16″ ($2399) from last year. Credit where credit is due – This is an incredible feat by Apple and TSMC.
Now, Apple where not the first to put an ARM-based chip in a laptop. Microsoft (MSFT) did it all the way back in 2012 with the original Surface and later again in 2019 with the Surface Pro X based on a modified chip by Qualcomm (QCOM) and have also created an entire variant of their OS called ‘Windows 10 on ARM’ – Allowing for OEM’s like HP (HPE), ASUS (2357) and Lenovo (0992) to also take a stride at this. But it was not until Apple managed to bring a product to market with proper software compatibility and performance that it really started to show.
Huge data cloud providers like Amazon (AMZN) Web Services and Microsoft Azure (Powering a combined 50% of the internet) are also reportedly moving towards switching to ARM and the two companies are even designing their own custom chips to achieve ultimate efficiency. On top of this, Google (GOOGL), the world’s third largest cloud service provider, have also become indirectly part of this movement by teaming up with TSMC to develop new methods of developing chip packaging within manufacturing.
This is why my I am now betting on TSMC as my next major investment. I started my position a few months before the announcement of Apple’s M1 chip in late 2020 and I have already seen an almost 40% increase in this short amount of time. TSMC’s biggest challenges currently seems to be their ability to expand their manufacturing quickly enough to keep up with demand along with a few geopolitical challenges that comes with being located in Taiwan. Although TSMC lost one of their all time biggest clients in 2020 – Huawei (or rather HiSilicon) due to America’s blatant ban on providing them with American licensed technology, it seemed no issue for TSMC and their factories are still running at full capacity and expanding as fast as they are able. The stock also yields a not-insignificant dividend of around 1.5% – Making them a great pick also for someone looking into dividend growth stocks.
Along with TSMC I bought a small position in Nvidia (NVDA) – who announced their plans to acquire Arm Ltd. – the company behind the licensing of the ARM technology. Although rumors of the acquisition where flowing for months before the announcement I did not quite dare to buy in before the official announcement from Nvidia – This hesitation I do regret now as the stock rallied significantly in those months – however I still see great potential for an upside here, as the move is still pending regulatory approval and because we are of course yet to see what plans Nvidia has for this new potential addition to their company.
Another great bet for the rise of ARM over the next decade would be Qualcomm which I did initially intend on picking up alongside my position in TSMC. They are a little less of a pureplay option – but could also see strong growth from other relevant trends in technology such as the rise of 5G. They are now also under new management which could bring an interesting new opportunity for growth. The only reason I did not end up buying into Qualcomm myself was a matter of prioritizing where to put the cash I had available.
I hope this article is able to convey the opportunities this shift in technology could bring with it and why I am so exited about it. I’m looking to grow my position in this field of technology as soon as I am able throughout 2021. After all, if you had the chance to go back and invest in Intel back in the 80’s – Wouldn’t that be nice? The coming ARM revolution I believe is that chance to do just that or as close as possible to it anyway.
Just to round off – Like I mentioned I have no ill will against Intel – I do not believe in the company right now, but that’s mostly do to management and a plethora of bad decisions following in their wake. I also have not mentioned Advanced Micro Devices (AMD) in this article at all. They are another company very much dependent on the x86 architecture, however I really respect their CEO and general management – they have much more momentum going into 2021, are working closely with TSMC as well and happen own a very successful GPU business much more alike to Nvidia than Intel.
UPDATE (March 15, 2021) : Since releasing this article Intel has replaced their CEO with a much more technical profile – A great move in my opinion. They are also talks about a pending partnership with TSMC in producing some of their lower end processors like the Core i3. I truly hope Intel is able to steer the course in the right direction before it is too late. In other news the world has also been hit by a semiconductor shortage which is likely to last a year or so. TSMC is facing troubles with drought in their home country and the price has dipped to around the same level as when I posted this article – and so I have added to my position further.
Disclaimer: I am not a financial advisor, the opinions expressed in this article are entirely my own – always invest at your own risk.
If you enjoyed this read and are looking for more content like it, consider signing up for my email list to recieve new posts from jesbaek.com directly in your inbox. It is completely free and will not be used for anything else.