BANK OF AMERICA: Buy these 14 semiconductor stocks poised to benefit from Biden’s multitrillion-dollar infrastructure plan — including 1 set to surge 39%

Business Insider

April 2, 2021

President Joe Biden has unveiled his $2.25 trillion infrastructure proposal This is the first part of a four-part eight year plan, paid for by tax hikes on businesses.

The proposal covers a range of areas, from a $621 billion investment in electric vehicles and transportation to a $480 billion in spending on manufacturing subsidies, research and development, as well as a $200 billion investment in broadband.

Bank of America analysts said in a new report said the plan should accelerate growth in domestic manufacturing, 5G/broadband, and clean-energy.

This pickup will be a welcome change to the US semiconductor industry.

Despite historical dominance in semiconductor manufacturing within the US, market strength has waned in recent years, Bank of America analyst Vivek Arya said in the March 30 note.

“Over the last 30 years, US semiconductor manufacturing capacity as a percentage of the total world has fallen from 37% to ~12%,” Arya said.

Government investment in semiconductor research and development is also weak compared to historical levels.

“In the early 1980s, government investments in direct semis R&D doubled that of private funding, but now is 20x+ less than private investment,” Arya said.

With geopolitical tensions rising between the US and China and the race to establish 5G dominance between the two countries underway, Bank of America analysts expect the US to refocus investment in the semiconductor industry as it forms the building blocks of multiple technological advancements.

Industry associations have been calling for near tripling of semiconductor specific research investment as well as doubling of US investment in semiconductor fields, the note said. There have also been calls for tax incentives and grants for manufacturing, particularly as global competitors gain an advantage over the US.

The proposal from President Biden increases funding across a variety of sectors. The analysts expect there will be four key areas from the plan that will benefit semiconductor companies:

1) Focus on domestic self-sufficiency in semiconductor industry

“In our view semicap equipment vendors – AMAT (top pick), KLAC, LRCX and TER – are ideally positioned to benefit from “silicon nationalism” – enhanced domestic remanufacturing by US and other regions to become more self-sufficient in semis,” Arya said.

US funding could also incentivize smaller players with manufacturing capacity to potentially build, or re-locate facilities in the United States, Arya said.

2) 5G infrastructure and broadband

“The government could provide funding to incentivize 5G deployments in the United States, in order to gain ground on China’s leading 5G position (est. 70% share of global deployments in CY20),” Arya said. “The solid pace of the infrastructure rollout also led to strong 5G smartphone sales.”

3) Smart industrial automation

“Amongst other key areas, Biden’s anticipated infrastructure bill targets advanced manufacturing and energy efficiency,” Arya said. “Both of these focal areas encapsulate a broader growth theme called Industry 4.0 (or the 4th Industrial revolution) that many diversified semi vendors are actively pursuing today.”

4) Clean energy/EVs

“In order to promote the advancement of its climate change agenda, the Biden administration will look to increase the adoption of electrics vehicles (EVs),” Arya said. “Several different methods to target this have been proposed including the extension of tax credit, a return of the “cash for clunkers” program (i.e. incentivizing the replacement of older energy inefficient vehicles) and greater investment in charging infrastructure.”