The best time to invest is during an economic downturn. When prices are depressed, and the masses are fearful, those with spare cash and an iron gut can take advantage and buy.
That's an approximation of what Micron Technology (MU 0.65%) is saying it wants to do. The chip industry is in the early stages of a cyclical downturn right now, and Micron itself announced a big hit to its revenue and profits is upcoming. But thanks to some help from the recently passed CHIPS Act, Micron will be expanding its U.S. manufacturing. It already broke ground on an expansion of its Boise, Idaho, facility. Its second site? New York state, where Micron plans on spending up to $100 billion over the next two decades on a new megafab.
It's huge news for Micron, New York, and the whole semiconductor industry, which is still grappling with fallout from the pandemic and a shaky supply chain that is highly reliant on overseas fabs. But the biggest winner from this up to $100 billion announcement could be the companies that make fab equipment. Here are three stocks that will benefit.
Diversified chip fab equipment gets some relief
Applied Materials (AMAT -0.36%) and Lam Research (LRCX -0.41%) are two diversified chip fab equipment-maker leaders. Whenever a chipmaker like Micron needs to build a new fab, or update or expand an existing one, a company like Applied or Lam will be in the thick of it. As for these two, in particular, they don't just build the complex and expensive equipment that makes the chips. They provide engineering and support services, too, making them a trusted partner for a company like Micron that is attempting an ambitious new project like the one for New York.
A sizable chunk of that $100 billion spending outlay could go the way of Applied Materials and Lam Research. Applied Materials has hauled in $25 billion in revenue over the last reported 12-month period. Of that total, nearly 40% of it comes from memory chip equipment. And of this memory chip total, Applied's sales tend to skew toward DRAM -- the memory chip type Micron wants to produce in New York.
As for Lam Research, upwards of two-thirds of its $17 billion in revenue over the last year came from memory chipmakers. Lam's memory chip revenue skews toward NAND memory (Micron makes that too, but that's not the plan for New York). However, DRAM is also a part of Lam's portfolio, so there could be lots of new revenue to go around since Micron's New York plans are in addition to its big ambitions for expansion in Idaho too.
Here's another big reason Applied and Lam could be big winners: Micron isn't the only company trying to domesticate chip manufacturing. In the wake of the pandemic, the U.S. has seen the need to bring some of its semiconductor supply home. Simultaneously, the U.S. has also been putting some restrictions on sales to China for companies like Applied and Lam. China makes up roughly one-third of the geographical breakdown of both companies' revenue. Big projects in the U.S. and other countries (like in Europe) could go a long way toward replacing any lost sales if restrictions on China continue.
Don't exclude cutting-edge equipment from the party
There's another company that could be a winner here: Dutch technologist ASML Holding (ASML 0.72%). ASML has a monopoly on extreme ultraviolet (EUV) lithography equipment that high-end logic chipmakers are using for things like advanced cloud computing and AI.
But memory chips are growing in complexity too. Tech giant Samsung was the first to use EUV in manufacturing some memory chips in 2020. More EUV equipment will be needed in the coming years as the need for data-dense memory chips grows. And guess who's using EUV on some of its memory products? Micron is.
Similar to Applied and Lam, ASML has also been running up against sales restrictions to China for its most advanced equipment. With revenue potential being throttled, Micron's project in New York (as well as the sister fab in Idaho) could refill ASML's sails. And with no EUV competitors on the horizon, ASML stands to be a top beneficiary from these new sites.
Micron's $100 billion spending project won't be an instant home run for Applied Materials, Lam Research, and ASML. The spending will be spread out over two decades. Nevertheless, Micron isn't alone in its ambitious semiconductor manufacturing expansion efforts. With lots of work now being prepped to diversify the world's supply of basic tech building blocks, these three companies could be some of the top victors at the end of this decade.