Chip manufacturers are forecasting strong demand for many years down the road, and that's a fantastic secular growth trend for semiconductor investors. In this segment from "Semiconductor Revolution," recorded on Feb. 3, Motley Fool contributor Nicholas Rossolillo takes a closer look at the growth potential for this particular area of the semiconductor industry.
Nick Rossolillo: When are we going to have the big giant pullback when supply suddenly outpaces demand and the industry goes through a short-term crash. When is that going to happen? We've talked a lot about how we think maybe it won't or when it does happen, maybe it's not going to be that severe because demand is so strong.
I wanted to share an investor presentation from a company called Axcelis Technologies. Ticker is ACLS. This is not a company I'm talking about going to buy I'll say that, but [laughs] it's still an interesting presentation. It was actually in December, so it's not new news. I wanted to point this slide out. This company makes a very specific type of equipment. Axcelis actually competes with a portion of Applied Materials for a machine called an ion implanter. It aids in the manufacturing of the actual wafers that chips eventually get etched and printed onto.
But they have the slide that I think is really helpful when we try to think about, when is the chip shortage going to end? This is the capital spending trends that are being focused over the next few years. Basically, fabs spending to purchase equipment so that they can increase capacity. We can see this really huge increase in spending the last few years. But it doesn't really start to plateau until 2023, maybe 2024 before starting to tick up again in 2025. This is a very long-term prediction that's being made. But I think it's important though because Axcelis and other chip equipment companies, have really good insight into future purchasing trends. They're you could say almost the leading edge chip manufacturing because when a fab needs to increase capacity, the first-place they might go to is the equipment manufacturer and say, hey, sell some equipment so that we can increase production.
The long and the short basically is this equipment spending is ramping up through next year, which bodes really well for chips supply continuing to turn higher to try to keep up with demand at least through next year. Are we going to have a crash in the chip industry next year, or will it just plateau and then level off? That's what remains to be seen. But I think the main takeaway here as, as long term investors, which hopefully we all are here at The Motley Fool, we're looking five years plus down the road, the trend is chip production has to increase for many years. You can almost just ignore the fact that we might see a plateau or a crash next year or maybe into 2024, who knows, but the takeaway is, who cares? Chip manufacturers are forecasting really strong demand for many years down the road, and that's a really fantastic secular growth trend for us as semiconductor investors.
