If the 7.4 magnitude earthquake in Taiwan has reduced the world’s supply of microchips, it could disrupt investors’ positions. We will soon find out whether chip manufacturing capacity in Taiwan has diminished or if deliveries will proceed as usual.
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A disruption in chip supply could potentially contribute to global inflation. This inflation arises because microchip shortages are known to hinder production across all industries that depend on these chips, which are now in limited supply. Consequently, low production coupled with unchanged demand leads to higher prices.
More Domestic Chip Manufacturing
The Biden administration led a push to manufacture more critical chips domestically. Ultimately, in September 2023, Congress passed the CHIPS Act, which provides government support for the construction of new U.S. chip-making capacities by current U.S. chipmakers. This includes companies like Intel (NASDAQ:INTC), Applied Materials (NASDAQ:AMAT), Texas Instruments (NASDAQ:TXN), and Nvidia (NASDAQ:NVDA).
The TipRanks Stock Comparison Tool below indicates analyst price targets and the analyst consensus rating on U.S. microchip manufacturers.
Key Takeaway
In summary, Taiwan-based chip factories experienced minor damage from the earthquake. The timing of the quake, amid high demand for high-end processors used in generative AI applications, highlights the risks of concentrating manufacturing in one geographic region. This vulnerability highlights how a disruption in chip supply can lead to global inflation. Since microchip shortages hinder production across industries reliant on these chips, low production with unchanged demand results in higher prices.
In response to these challenges and to mitigate the risk of future disruptions, the Biden administration has championed efforts to increase domestic production of critical chips. This move aims not only to strengthen the supply chain but also to counteract potential inflationary pressures by ensuring a more stable and diversified chip production landscape.
