Technology, War And Stocks

• “Poker is war. People pretend it is a game.” Doyle Brunson
• “Show me a good loser and I’ll show you a loser.” Stu Ungar
• “My favorite chip trick is to make everyone’s chip stack disappear.” Amarillo Slim

A few months ago, I started buying stock in Intel, betting that the company can become a monopoly chip manufacturer outside of Asia. Whether you know it or not, if you live in US (or in Western Europe) you’re betting on Intel too. Here’s why.

The entire US culture, and certainly the US military superiority, depends on technology continuing to advance. Technology these days means software and chips. The biggest most advanced companies in the US and even our military superiority depend upon continued access to the most advanced semiconductor chips in the world.

Nobody can compete with the US domestic supply of software programmers and platforms, but those most advanced chips come from one place and it’s not a terribly secure place for an entire civilization on the western side of our globe to depend on: Taiwan, a tiny island with a population of only 23 million people sitting just about 100 miles away from a giant country 100x more people in it. Taiwan’s entire GDP is less than 1/20 China’s GDP, meaning that people in Taiwan make, on average, about more than 3x more in income per year than those in China.

Meanwhile, Secretary Gina Raimondo has been rightfully pointing out that the U.S. “buys 70% of its most sophisticated chips from Taiwan. Those are the chips in military equipment. There’s [about] 250 chips in a Javelin launching system. You want to be buying all that from Taiwan? That’s not secure. Pass the bill, Congress, pass CHIPS, and let’s get to the business of making those chips in the U.S. to secure our future.”

You know want to know what else, besides the US military won’t work without chips, of which 92% of the most advanced come from TSM: Your phones from Apple and Android or any other devices that run chips from Qualcomm, Nvidia, or AMD. Cars from Tesla and other makers, especially EV cars.

So what is to be done? Well, Intel’s already getting help from the government in the help of the CHIPS act and I think that’s a good first step. To be sure, I’m not sure anyone in the public eye has been more consistent about being anti-corporate welfare for longer than I have. That includes fighting against bank bailouts, TARP, auto bailouts, state subsidies, local subsidies, loopholes and other target tax tricks for giant corporations. But if there were ever a time that I thought the US government should subsidize a giant corporation it would be now, in the name of national defense, in helping Intel invest the tab that will go well over $100 billion of investment over the next ten years to make the US/Western Europe competitive against Taiwan and SMIC.

Oh, did I mention that it’s possible that China’s own domestic chip fab company, SMIC, has already caught up to Intel on chip technologies? SMIC seems to now be shipping 7nm chips, even though up until that news, we all thought SMIC was a couple generations or more behind Intel (currently at 7nm) which has been a generation or two behind Taiwan Semiconductor (TSM) which announced recently that they will soon start shipping 3nm chips. For the record, Intel hopes to be at 3nm in 2025, 2nm in 2027 and 1.4 nm by 2029.

I’ll quote Bloomberg here: “The Shanghai-based manufacturer is shipping Bitcoin-mining semiconductors built using 7-nanometer technology, industry watcher TechInsights wrote in a blog post on Tuesday. That’s well ahead of SMIC’s established 14nm technology, a measure of fabrication complexity in which narrower transistor widths help produce faster and more efficient chips. Since late 2020, the US has barred the unlicensed sale to the Chinese firm of equipment that can be used to fabricate semiconductors of 10nm and beyond, infuriating Beijing.”

And over the last few weeks, China’s military is advancing ever closer to Taiwan and violating previously agreed upon, at least de facto, boundaries. China basically blockaded Taiwan (and therefore TSMC’s chips) for days at a time in the last couple weeks. Maybe China thinks their own technology (software and chips) is advanced enough now that their military doesn’t have to kowtow to American might. Maybe they feel they have no choice but to stop those TSM chips from getting to the US military which will then turn around and send advanced military equipment to Taiwan (at least the US might send Taiwan more military equipment if they can get enough chips to supply Ukraine and Taiwan simultaneously but supply chain issues are not allowing that right now). Whatever the reason, the threat of losing access to the most advanced chips in the world because China shuts off access to Taiwan is real.

The Redomestication Of The Supply Chain Revolution was already in full effect and starting to build over the last couple years after escalating trade tensions, then tariffs, then Covid, then Russia/Ukraine War, all built into a Great Supply Chain Crisis that has even Fruit of The Loom trying to domesticate their supply chain. Soldiers need underwear, but it’s not undies that will define economic and military superiority in coming decades — it’s software and chips.

And the only way the US and Western Europe can possibly stay up with China/Taiwan/South Korea (Samsung’s a cutting-edge chip maker, but it’s also a tiny place right next to China and will always be geographically, if not politically, on the other side of the world than the US/Western Europe) five, ten years from now will be to have access to the most advanced chips on the planet and in order to secure that access, those chips will need to be made here in the US and in Western Europe. And the only company in the US/Western Europe that has the ability, history and potential to make the most advanced chips is Intel. TSM has plans to to build its own advanced chip fab in Arizona, but remember that if China were to take over Taiwan, who would own that factory by default.

So whether you realize it or not, whether you own stock in Intel or not, you too are betting on Intel.

The good news for Intel investors is that if Intel does pull this off and the US remains dominant technologically and therefore economically and militarily, Intel will basically be a monopoly in the west. It could possibly be the most valuable company on the planet if they pull this off. And if they don’t? I’m not sure your stock in Coca-Cola, GE or Honeywell is going to be worth much anyway.

So I have made INTC a large position already and I’ve nibbled a little bit more of it as its gotten down towards the $30 level where I’ve been saying I’d buy more aggressively.

You too have a big bet on INTC, whether you like it or not.