Mad Hedge Technology Letter
November 17, 2023
Fiat Lux
Featured Trade:
(CATCHING OPTIMAL ENTRY POINTS IN TECH)
(AMAT), (SMIC)
Mad Hedge Technology Letter
November 17, 2023
Fiat Lux
Featured Trade:
(CATCHING OPTIMAL ENTRY POINTS IN TECH)
(AMAT), (SMIC)
Buy Applied Materials (AMAT) on the dip.
That was my conclusion after hearing this chip-making stock nose-diving by the most in almost a year.
Rarely do traders get such a good entry point into such a high-quality name.
AMAT has been around forever and it is a tried and tested chip brand that produces high-quality equipment.
It’s noteworthy that a report showed that AMAT faces a US criminal investigation for allegedly violating export restrictions to China, but it’s a storm in a teacup.
It’s not such a big deal, because the bad news will get discounted quickly and the US will probably give AMAT a light slap on the wrist.
It makes no sense to destroy a company that is critical to national security infrastructure.
Maybe a few executives will get laid off and then we move on.
After this issue is swept under the carpet, it’s all systems go for AMAT.
The company is being probed by the Justice Department over dealings with China’s biggest chipmaker, Semiconductor Manufacturing International Corp.
The department is considering whether Applied Materials sold hundreds of millions of dollars of equipment without the proper licenses.
Chip companies are operating under increasingly strict rules imposed by Washington on exports of chip technology to China.
Acquiring licenses to send certain types of machines to Asia is a sign of the times and how national governments are desperate to keep technological know-how in the state.
Applied Materials produced chipmaking gear in Gloucester, Massachusetts, and then shipped it to a subsidiary in South Korea.
It then went to China’s SMIC, the people familiar with the investigation said.
SMIC was placed on a so-called entity list in December 2020 by the Department of Commerce, which cited alleged links between the chipmaker and China’s military.
Semiconductor manufacturers order machinery from Applied Materials and its peers well ahead of opening new factories, which can take more than a year to build and equip.
Though the chip industry has been contending with a slowdown in personal computers and smartphones, Applied Materials Chief Executive Officer Gary Dickerson has argued that artificial intelligence computing will fuel a new surge in demand.
Semiconductor equipment companies have been hurt by weak demand from memory chip makers, which are enduring an industry glut.
Luckily, the savior is AI and its insatiable demand for high-end processors.
China has been one of the fastest-growing markets for chip equipment. But the US restrictions have put a wet towel on the business relationship.
Uncertainty is the keyword here, but if AMAT keeps producing world-class equipment, it will accrue value in almost any financial market.
I am comfortable recommending AMAT now and the discount certainly makes it look more attractive.
Once AMAT acquires a license to sell to the Chinese, this will be forgotten.
The demand for conventional chips and AI chips is leading the charge and even though there is a glut of non-AI chips, AI chips will lead the charge in the short term before consumer demand comes back.
This is the forefront of technology and readers should grab a piece of it.
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