The Senate recently passed the U.S. Innovation and Competition Act, which would grant $52 billion in subsidies to the U.S. semiconductor industry. This assistance comes as chip production continues to trend away from America's producers.

Today, Taiwanese companies such as Taiwan Semiconductor Manufacturing (TSMC) produce approximately 65% of the world's semiconductor chips, according to TrendForce. Also, the Congressional Research Service found that the U.S. accounted for only 11% of production in 2019, compared with 40% in 1990. 

However, some semiconductor companies have long maintained a large U.S. manufacturing presence, and that fact will likely favor Intel (INTC 1.74%), Micron Technology (MU 4.58%), and Texas Instruments (TXN 0.52%) as the government decides how it will allocate subsidies. Let's discuss how these three chips stocks could benefit.

a person wearing protective gear and with rubber gloves on holds up a semiconductor chip for examination.

Image source: Getty Images.

1. Intel

Intel remains America's largest fab operator, making it best-positioned to take advantage of this funding. Moreover, it may finally have the right leader who could make use of the subsidy.

Pat Gelsinger has put his engineering background to use since becoming Intel's CEO by his increased focus on in-house chip development. Even before the Senate had approved the subsidies, Gelsinger had reversed course on a plan to outsource more production to TSMC. Additionally, Intel continues to make chips in multiple fabs across four states and just announced plans to build two new fabs in the Phoenix area.

Though investors will not see a clear path to a comeback for at least a few years, investors should not count Intel out. Many analysts believed Advanced Micro Devices could not come back when Lisa Su became CEO in 2014, but it did and such a comeback also could happen at Intel.

Moreover, Intel stock has become a screaming buy. It sells for 13 times earnings, a massive discount to its closest rivals. Admittedly, stagnant growth likely explains this low multiple. Revenue fell 1% in the latest quarter, compared with year-ago levels. And even in 2020, a time of heightened demand, revenue only increased by 8% over the year.

Nonetheless, if Intel can make use of the subsidy, it could bring revenue growth and multiple expansion should the outlays foment a revival in U.S. chip manufacturing.

2. Micron Technology

Micron focuses primarily on memory chips. The volatile price of memory prevented the stock from gaining long-term traction for decades. However, the exponential increase in demand for memory driven by artificial intelligence (AI), virtual reality (VR), and the Internet of Things (IoT) has helped Micron stock finally move higher.

The heightened demand can also help Micron make use of a potential subsidy. It already operates four fabs in the U.S. that produce its DRAM and NAND memory. Moreover, only three companies make DRAM, and Micron is the only one not based in South Korea. Thus, it could play a critical role in instigating a recovery in a vital part of the chip industry.

Micron now trades at about 28 times earnings. While that far exceeds historical norms, so does Micron's production levels. Moreover, while volatile chip price cycles have hurt long-term gains in the past, Micron's stock price has now risen by almost 65% in the last 12 months and nearly 570% over the previous five years. Given the exponential increase in chip demand, Micron stock could continue rising, even if price fluctuations lead to temporary sell-offs.

3. Texas Instruments

Though it rarely markets products under its own name nowadays, Texas Instruments remains influential. Its analog chips go into more than 80,000 products. This has taken TI into several lines of business, including industrial machines, personal electronics, and automotive. The automotive component has become critical as the lack of chips has slowed car production.

TI operates five fabs in Texas, along with one in Maine. However, it had planned to close two of the fabs, both more than 50 years old, and consolidate operations into one new fab. While it's given no indication of how it would allocate such funds, that capital could enhance and possibly expand modernization efforts already in place.

Currently, Texas Instruments sells at a price-to-earnings (P/E) ratio of just under 30, up from the 24 range one year ago. Nonetheless, TI stock surged by more than 50% over the last 12 months and by just over 200% over the previous five years.

In 2020, TI saw only a modest revenue increase compared with 2019, though net income rose by 12% on lower income taxes and other income sources. In Q1 2021, revenue rose 29% and net income increased 49% from year-ago levels as the company kept operating costs from rising significantly.

Additionally, investors should not ignore the dividend, which has increased every year since 2004. At an annual payout of $4.08 per share, it produces a cash return of about 2.2% at today's prices. Hence, with a track record of steady stock and dividend increases, a subsidy could improve an already solid value proposition.