“The simplest and most immediate effect is that chip machine manufacturers are doing well. As of the end of October, ASML’s share price has now risen by 85 percent, while the AEX has risen ‘only’ 37 percent over that period. But of course, this will not continue. For an investor in chip machine manufacturers, it is helpful to know that the demand for chip machines has some of the same characteristics as the hog cycle. When the demand for pork chops - and therefore the price - is high, hog farmers expand. On the other hand, when that new meat comes onto the market, there is immediate excess, which then brings the price down. The same is true of the market for chip machines. As with pig farmers, it takes a while for new supply to be created. This carries the risk that in a few years there will be a surplus of chip machines and chips. An investor in chip machine manufacturers must therefore know exactly when to stop.”
The indirect effect of the chip shortage is much greater, Knaap explains. “You can’t think of anything without a chip in it nowadays. The shortage is a well-known bottleneck for car manufacturers, but it is currently affecting the entire supply industry. When it doesn’t get enough chips, it also leads to a shortage of other parts. There is a risk that the Western economies will stall because of this shortage.
Everything is expensive now, not only chips but also oil. If the prices of many components and semi-finished goods go up, in the worst-case scenario a situation similar to the oil shocks of the 1970s will arise. The big question hanging over the market is: will it lead to inflation? That is the fear of many investors. Central banks are now pursuing a loose monetary policy by buying up government bonds and corporate bonds, among other things. This is good for investors, because it pushes up the prices of bonds and shares. But if inflation does occur, central banks lose the excuse to pursue this broad monetary policy. They must then stop buying bonds and in that case the mechanism works the other way round. The chance for stock markets to fall increases and, because the current monetary policy has been pursued since 2008, you could even see a major correction. It may be a bit of a shock to investors.”
The main cause of the worldwide shortage of chips was the extremely high demand caused by the Covid-19 pandemic. Working from home, and the increased demand for game consoles in particular, played a role in this. Still, according to Knaap, that’s not the whole story. “The demand for chips has also increased due to the increased popularity of crypto currencies. A lot of chips are needed to mine bitcoins. And there is also a lot going on on the supply side. In the early 2020s, many companies in Asia were at a standstill due to lockdowns. You can still see that in the availability of goods, including chips. Plus, Covid-19 made us ask ourselves whether we want to be so dependent on foreign producers for certain products - mouthguards, medical equipment, and so on. The answer is no. There will be more production in Europe and the US again, rather than in China. That’s good for our independence. But it does mean that everything will become more expensive.”