How does the core equities team research an industry or a company? We start by analyzing all of the available public information such as financial statements, transcripts and proxy statements. However, to gain a more holistic view, we broaden our aperture by talking to a company’s competitors, suppliers, employees, and importantly a company’s customers as financials statements don’t tell the whole story. Increasing our aperture is hard work but can shed light on trends and importantly, help us see around corners to spot risks. For example, I recently attended Semicon West, a trade show for the semiconductor (“semi”) industry. Semis are a foundational building block for technological advancement and have gained widespread attention for their role in the advancement of Artificial Intelligence as well as their role in geopolitics. At Semicon, I had a chance talk to customers, salespeople, engineers, regulators and academics to understand what industry participants (rather than financial types like us) think about the key trends in the industry.

I have summarized a few key takeaways.

• Moore’s Law. There were multiple presentations on the difficulty of continuing Moore’s Law, which is the trend of miniaturizing components on chips to achieve better performance. Chip manufacturing is now done at atomic scale making it harder to get the same level of miniaturization year-in and year-out. This may constrain industry growth in the long-term. However, this has positive implications for suppliers of manufacturing tools and equipment such as Applied Materials and Tokyo Electron as chip manufacturers are increasingly dependent on cutting edge manufacturing techniques to keep Moore’s law going.

• Energy. Growth in AI will dramatically increase our energy requirements. Data centers currently account for 4% of global energy consumption, but AI-centric datacenters are 10x more energy intensive implying data centers could account for over 10% of global energy consumption in the next decade. This has significant implications to sustainability, which may lead to increased industry regulations. Longer-term, this is a positive development for chip designers like NVIDIA who can design solutions that integrate multiple processors into a single system to optimize power consumption.

• Re Shoring. Over 90% of cutting-edge semis are manufactured in Taiwan and Korea. Given the geopolitical risks, there has been significant investments by the US to re-shore this capacity. In fact, speakers from the US Dept. of State emphasized the importance of chips to national security. This may prove disruptive to the global semiconductor supply chain shorter-term, but nearshoring allows for a more resilient supply chain longer-term. This is a positive trend for US domestic champions like Intel who are significant beneficiaries of increased government funding and support.

“This means that” the Core Equities team continues to take a holistic approach to analyzing businesses and industries and continues to monitor both positive and negative trends in the semiconductor industry closely to spot opportunities and look around corners to identify emerging risks.