If you follow the chip sector, you might be confused.
Check out what's happened in just the past month…
On Nov. 3, we learned that Marvell Technology Group Ltd. (Nasdaq: MRVL) is in talks to buy Cavium Inc. (Nasdaq: CAVM). The pact would create a chip firm worth some $14 billion, but the deal is yet to be consummated.
But that was small potatoes compared to what came next.
On Nov. 13, Qualcomm Inc. (Nasdaq: QCOM) rejected a $105 billion buyout offer from Broadcom Ltd. (Nasdaq: AVGO) – what would have been the biggest tech buyout in history. As a leading supplier of mobile-chip technology, Qualcomm says it's better off operating on its own rather than merging with Broadcom.
And all that comes after Qualcomm offered $39 billion to buy NXP Semiconductors NV (Nasdaq: NXPI). At the time, that was the record amount for a chip sector takeover.
Moreover, Wall Street analysts seem to be constantly putting the semiconductor sector on "watch" – saying the current chip surge is about to run out… today… tomorrow… next week.
But they're always wrong.
If you're not sure where you should be putting your money after mixed messages like that, I understand. Like I said, it gets confusing.
However, you do want some money in semiconductors.
See, the chip industry is consolidating not out of weakness, but strength.
A recent report by industry trade group SEMI forecasts that silicon shipments will hit 11.49 billion square inches this year, 11.8 billion next year, and 12.24 billion in 2019. Total shipments of "wafers" – the format silicon is produced in – for this year will break the record set back in 2016. And shipments will continue at record levels for each of the next two years.
And that's just one robust forecast – I'll show you a couple more below.
Still, if you're not up for picking and choosing among the acquirers and acquireds, there is a way to make money off the on again/off again Qualcomm-Broadcom merger, the Marvell-Cavium lockup, and just about any other chip-sector M&A that comes along.
It's a wallet-expanding way to profit from the chip sector's ascendance and merger mania in a way that is crushing the market by nearly threefold…
My Only Prediction Is Profits
Let's be clear about one thing. Broadcom said it would like to proceed with the takeover even if that Qualcomm-NXP deal falls through – and even if Qualcomm keeps declining its advances. That means pulling off this merger will require more money. It's a hurdle but not an impossibility.
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That brings up a second challenge – federal regulatory concerns. The sheer size of the deal will likely lead to government officials taking a close look at it – and maybe even attempting to block it.
After the U.S. Department of Justice sued to block the $85.4 billion bid from AT&T Inc. (NYSE: T) for TimeWarner Inc. (NYSE: TWX) a couple of weeks back, it's clear that the Trump administration is watching corporate consolidation closely.
At this point, that outcome is impossible to predict.
About the Author
Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.