Chip Stocks Poised for Growth as Musk Unveils ‘Terafab’ Plan
The Rise of Semiconductor-Equipment Stocks
Semiconductor-equipment stocks have become a hot topic this year, especially with the growing interest in artificial intelligence. Now, there’s another potential catalyst on the horizon. Analysts believe that shares of chip-equipment makers could be among the biggest beneficiaries of Elon Musk’s ambitious plan to manufacture his own chips.
Musk recently announced his vision for a “Terafab” facility in Austin, Texas. This facility is set to produce chips for Tesla vehicles and robots, as well as space-based data centers. The goal is to scale up to 1 terawatt of compute power per year. The Terafab is expected to produce everything needed for advanced chips, including logic and memory components and packaging technologies.
Key Beneficiaries of the Terafab Project
Mizuho trading-desk analyst Jordan Klein believes that Dutch chip-equipment manufacturer ASML Holding would be a key beneficiary of the Terafab project. Since the Terafab would produce leading-edge chips, Klein noted in a Monday note that it would require ASML’s extreme-ultraviolet lithography machines for manufacturing chips beyond the 2-nanometer process.
Wafer-fab-equipment maker KLA could also benefit from the Terafab efforts, as the company offers advanced metrology systems used for design verification and monitoring high-volume chip-manufacturing processes. The venture would also presumably need equipment for etching and deposition, which are manufacturing and packaging processes. This could help companies like Applied Materials, Lam Research, TE Connectivity, and possibly Teradyne, according to Klein.
The Scale of the Terafab Venture
One terawatt of compute is about 50 times the 20 gigawatts of global compute supply available today, according to Musk. From doing some “very rough back-of-the-envelope” math, Bernstein analyst Stacy Rasgon said that could require between $5 trillion and $13 trillion in capital spending on wafers for different types of chips, such as high-bandwidth memory.
Klein pointed out that questions remain regarding the funding and timing of the Terafab. He noted that just the shell of the fab could take about two to three years to build. “Musk has to get the funding and a lot of it,” Klein said, pointing to the SpaceX initial public offering that is expected later this year.
Investor Caution and Market Reaction
Despite the potential, Klein cautioned investors to wait for more details about the Terafab before getting too excited about potential winners from the project. He views the Terafab as “another potential call option for upside to [wafer-fab equipment]” in the next three years and beyond.
Many broader chip-equipment stocks have already seen notable gains this year. Teradyne’s 57% rally ranks first in the PHLX Semiconductor Index, while Applied Materials’ 41% gain ranks fourth. However, analysts suggest that investors should remain cautious and wait for more clarity on the project.
Bernstein’s Rasgon shared a similar view, writing in a Monday note that the Terafab announcement currently doesn’t mean “all that much beyond the hype.” For believers in Musk, however, “you would want to buy semicap,” he said.
Implications for the Semiconductor Industry
Musk’s plan to build his own chips might come off as a negative for incumbent chip makers, but Rasgon added that “in a world where compute is this strong, any player is going to see far more upside than they could ever handle.”
The semiconductor industry is closely watching the developments around the Terafab project. With the potential for significant investment and growth, the impact of Musk’s vision on the market remains to be seen. Investors and analysts alike are keeping a close eye on how this ambitious plan unfolds.
