Jan 27, 2023

An Alphabet Soup of Tailwinds for Industrials

By Ben Olien, CFA

An Alphabet Soup of Tailwinds for Industrials

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.

This information is not intended to provide investment advice. Nothing herein should be construed as a solicitation, recommendation or an offer to buy, sell or hold any securities, market sectors, other investments or to adopt any investment strategy or strategies. You should assess your own investment needs based on your individual financial circumstances and investment objectives. This material is not intended to be relied upon as a forecast or research. The opinions expressed are those of Driehaus Capital Management LLC (“Driehaus”) as of January 2023 and are subject to change at any time due to changes in market or economic conditions. The information has not been updated since January 2023 and may not reflect recent market activity. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Driehaus to be reliable and are not necessarily all inclusive. Driehaus does not guarantee the accuracy or completeness of this informa­tion. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

About Ben Olien, CFA

Ben Olien is a senior analyst on the US Growth Equities Team with a focus on the materials, energy, industrials and utilities sectors.

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