CHIPSIRAIJAA……It’s a mouthful, but it is a tailwind for Industrial stocks. Over the last two years, several funding bills have been passed in the United States. These include the CHIPS and Science Act (CHIPS), the Inflation Reduction Act (IRA), and the Infrastructure Investment & Jobs Act (IJAA). These three bills provide significant funding to incentivize investment in the United States on a multi-year basis. A description of these bills is provided below.
CHIPS and Science Act (CHIPS)
According to the Semiconductor Industry Association, the share of modern semiconductor capacity located in the United States has fallen from 37% in 1990 to 12% today. The CHIPS Act was passed in 2022 and authorizes spending of $280B over 10 years to bolster United States semiconductor manufacturing capacity, increase research and development, and create regional high-tech hubs. According to McKinsey & Company, funding consists of scientific research and development and commercialization ($200B), semiconductor manufacturing, R&D, and workforce development ($52.7B), and tax credits for chip production ($24B).
Inflation Reduction Act (IRA)
The Inflation Reduction Act aims to address climate change by incentivizing investment in clean energy. The bill authorizes $738B in funding over 10 years through various incentives and tax credits. The areas addressed by the IRA are very broad. Some of the areas exposed include: Extensions of investment tax credits for wind and solar power, increased tax credits for carbon capture, novel tax credits for clean hydrogen, energy storage, and biogas, and incentives to retool existing facilities for the production of electric vehicles.
Infrastructure Investment & Jobs Act (IJAA)
The Infrastructure Investment & Jobs Act was passed in 2021 and authorizes $1.2 trillion in funding for various areas of investment. The bill provides funding for repair of roads and bridges, modernization of airports, ports, and waterways, investment in high-speed internet infrastructure, clean water technologies and the removal of lead pipes, electric vehicle charging infrastructure, and power infrastructure.
We see a potential investment opportunity in companies exposed to utility solar projects, clean water technologies, electric vehicle manufacturing equipment, engineering & construction companies, non-residential indoor air quality retrofits, and factory automation. This is a broad list, but we expect these three bills to serve as a tailwind, leading to a multi-year runway for investment in the United States. As a result, we are actively searching for investment opportunities within industrial subindustries we believe can benefit.
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