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Hewison Insights

Semiconductors: The ‘New Oil’

Pierce Hanlen
Partner & Wealth Adviser
15 Apr 2024

In the 21st century, the world runs on semiconductors. These tiny but mighty components are the backbone of modern technology, powering everything from smartphones and computers to cars and industrial machinery. As the demand for electronic devices continues to surge, semiconductors have emerged as the “new oil” of the global economy, shaping industries and driving innovation in unprecedented ways.

So how do these impressive components impact our lives, and what sort of opportunities do they present from an investment perspective?

The Rise of Semiconductors

Imagine a day without your smartphone, laptop, or even your car. It’s hard to fathom, right? Semiconductors make these everyday technologies possible. These small chips are the brains behind our gadgets, enabling communication, computation, and control in virtually every aspect of our lives.

Semiconductors are not just integral to existing technologies; they also pave the way for future advancements. From artificial intelligence and autonomous vehicles to 5G networks, these chips are the building blocks of technological advancements.

The semiconductor industry is also a global economic powerhouse. Companies like Intel, TSMC, Samsung, and Qualcomm are investing billions in research and development to push the boundaries of what’s possible.

So, what do I mean by semiconductors being the ‘new oil’?

Just as oil was once the lifeblood of the industrial age, semiconductors are the critical resource of the digital era. Without them, our interconnected world would grind to a halt, impacting everything from commerce and communication to healthcare and transportation.

Like oil, semiconductors are subject to supply chain vulnerabilities. In recent years there has been global chip shortage, exacerbated by the COVID-19 pandemic and geopolitical tensions, highlighting both the importance and fragility of this supply chain. From manufacturing disruptions to increased demand for electronics, various factors can impact semiconductor availability.

Semiconductors have become a matter of national security and strategic importance for many countries. The U.S., China, Taiwan, South Korea, and Europe are all vying for dominance in this critical industry, recognising its role in economic prosperity and technological advancement.

While semiconductors offer incredible benefits, they also come with environmental challenges. The manufacturing process requires significant energy and water consumption, leading the industry to explore more sustainable practices.

So, in the grand scheme of the global economy, semiconductors have indeed become the “new oil” — a critical resource that powers our digital lives and fuels innovation across industries.

Their strategic importance, economic impact, and role in shaping our technological future cannot be overstated.

From a wealth management perspective, it will be exciting to see what investment opportunities continue to emerge. Investing in the future can be extremely exciting and rewarding!