Why The CHIPS Act Is Good News For Intel, Bad News For Nvidia, Advanced Micro Devices

A pair of bills that include tax credits and subsidiaries for U.S. chip makers could have a major impact on the semiconductor industry and its investors.

What Is The CHIPS Act? A bill known as the CHIPS Act is driving a wedge between semiconductor companies that produce their own chips and those that rely on third-party manufacturers.

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Senate Majority Leader Chuck Schumer has said the Senate could vote on the CHIPS Act as soon as Tuesday. The legislation is aimed at keeping U.S. semiconductor production competitive with production in China, Taiwan and elsewhere in the world.

The CHIPS Act provides $52 billion in subsidies for U.S. chipmakers to build factories to manufacture chips. U.S. chipmakers that produce their own chips include Intel Corporation INTC, Texas Instruments Incorporated TXN and Micron Technology, Inc. MU.

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Another measure called the FABS Act would provide investment tax credits for these chipmakers to purchase tools to use inside their factories.

Why Is It Important? Passage of the CHIPS Act and FABS Act would be great news for Intel, Micron and Texas Instruments, but U.S. semiconductor companies that don't build their own chips wouldn't benefit from the subsidies or tax credits at all.

Companies like Advanced Micro Devices, Inc. AMD, NVIDIA Corporation NVDA and QUALCOMM, Inc. QCOM design chips in-house but rely on third-party manufacturers such as Taiwan Semiconductor Mfg. Co. Ltd. TSM to produce them.

AMD, Qualcomm and Nvidia support a modified version of the FABS Act that has been introduced in the House of Representatives that includes tax credits for both manufacturing and chip design.

Benzinga's Take: The entire point of the CHIPS Act and FABS Act subsidies and tax credits seems to be to incentivize domestic U.S. semiconductor production and decrease the nation's reliance on foreign manufacturing. It isn't obvious why the U.S. would need to financially incentivize domestic design when companies like AMD and Nvidia are already among the global leaders in chip design.