July 12, 2024
How to Profit from Silicon Valley's 'Ice'
Dear Subscriber,
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| By Michael A. Robinson |
You’d be hard-pressed to find a guy who wears more diamonds than me.
See, a few years back when I was a touring musician, I needed some bling on stage to level up my appearance.
And since I have no desire for tattoos, I turned to jewelry. Which explains why I have so many diamonds.
On my right hand I wear a gold ring that features 25 small diamonds. On my left hand I have one gold ring that sports five white diamonds set off by two rows of black ones.
I just got back a pinky ring from my jeweler who added two diamonds to a ring that has onyx and fiery opal. As you might have guessed, I also wear a diamond earring.
Some of my colleagues have teased me about my jewelry obsession over the years.
Turns out, the laugh’s on them … my diamond rings actually put me at the vanguard of Silicon Valley.
Not that execs down there are loading up on jewelry.
But they are exploring ways to use diamonds in electronics in a way that could totally disrupt the $573 billion semiconductor sector.
In a moment, I will tell you about a great way to play these kinds of innovations with an investment that touches on the disruptive use of advanced chip materials.
But first, let me set the stage for you.
Silicon ‘Ice’
See, all electronics give off heat. That’s especially true of semiconductors because they have billions of transistors sitting on a piece of silicon the size of a standard postage stamp.
Imagine millions of these semiconductors inside vast data centers that house hundreds and sometimes thousands of server racks.
Fact is that chips are so densely packed today that the threat of heat damage is rising very quickly.
Which brings me around to the use of synthetic diamonds.
Electrical engineers say the material is one of the best conductors of heat in the world today.
So, Silicon Valley is experimenting with ways to use these synthetic diamonds inside chips to keep them running cool even as semis get more densely packed for things like AI that require vast computing power.
And it’s not just there. Just months ago, researchers at the University of Illinois created a chip using synthetic diamonds they say offer superior control over heat and loss of voltage while in use.
The diamond process is not yet ready for prime time. But it does give you an idea of how chip firms are looking for game-changing innovations based on novel materials.
Indeed, the industry is already tapping the power of silicon carbide, which is a combination of silicon and carbon, and is a major growth market.
In fact, silicon carbide is so sturdy, it’s often what bulletproof vests are made of. It’s already getting wide use in chips designed for EVs and related charging stations.
As you can imagine, being more resistant to heat and pressure makes silicon carbide a natural choice for chips used in cars, solar power, aerospace and similar areas.
No wonder researchers at Needham forecast sales of silicon carbide chips for EVs alone could hit $14.4 billion in 2030 — a 10-fold increase.
The Designer Nvidia & Co. Use
That’s where Cadence Design Systems (CDNS) comes in. Based in San Jose, CA, Cadence is the product of a 1988 merger of the two leading Silicon Valley software and hardware design firms.
Today, Cadence is the market leader in electronic design automation, the business of doing the core development work on chips, circuit boards and related hardware for its clients.
By relying on Cadence’s tools, equipment and pre-designed chip templates, companies cut development time for new pieces of hardware by thousands of work hours.
In the fast-paced chip world, that translates into millions in saved costs.
That’s truer than ever when it comes to designing chips out of a material that companies haven’t used before.
Backers noted that SiC chips for industrial uses like robotics and automation can run at five times the frequency of standard semiconductors. SiCs can reduce system size and weight by 50% and lower cost of ownership by 20%.
Make no mistake. This is a company with a deep hook on the entire chip sector.
Cadence’s client roster reads like a who’s who of companies angling to put out silicon carbide chips for industrial applications, EVs, wireless communications and other uses.
Clients include Bosch, Broadcom, Nvidia, ON Semiconductor, Qualcomm, Samsung, Siemens, Texas Instruments, Toshiba and many more.
Cadence does more than just help design chips, though. The firm also provides its clients with a huge ecosystem of out-of-the-box software for things like automotive chips.
This means semi makers and car companies can easily add infotainment, voice control, advanced driver assistance features and much more to their Cadence-designed products.
All without having to make the software from scratch … and have to test that it works on their new chips.
As I mentioned, the switch from silicon to silicon-carbide chips will require lots of new design work, even as the number and sophistication of car chips keeps rising, along with the amount of software those chips run.
In short, the demand for Cadence’s services will only keep rising.
And now is a good time to get in, as Cadence stock is in a solid rebound from the sell-off that hit too many high-tech stocks back in August.
This is why it really pays to take the long view and not let quarterly ups and downs throw you off your goal of achieving financial freedom.
Despite inflation, rising interest rates and two wars going on right now, the S&P 500 is up a very respectable 87% over the past five years.
But during the same period, CDNS has crushed those returns, rising some 324%.
Cadence is an active recommendation in my Weiss Technology Portfolio publication. And it’s one I intend to keep in the portfolio for the foreseeable future.
As chip firms continue to adopt exotic materials like silicon carbide and synthetic diamonds, demand — and the stock price — will only continue to grow.
Best,
Michael A. Robinson
P.S. As chips advance, the sophistication of AI continues to grow exponentially. In fact, for the latest AI advancement from Dr. Martin Weiss, I urge you to watch this breaking interview.
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