R.I.P. Silicon Valley?

Michael Robinson

Tuesday, December 20, 2022

At the rate things are going, an explosive new trend may force Silicon Valley to change its name.

You see, Silicon Valley’s name stems from the fact that the vast majority of semiconductors are made of, you guessed it, silicon.

But that’s rapidly changing. And all it took was for electrical engineers to rip a page from the history books.

You see, back in 1906, a unique compound known as carborundum was used to make early versions of radios. And it turns out, massive adoption of electric vehicles (EVs) may well rest on the growing use of this compound, now known as silicon carbide.

According to industry analysts, the combination of silicon and carbon can add ten percent to an EV’s range, and enable faster charging. It’s no wonder research firm Needham & Company estimates that sales of carbide chips for EVs could reach $14.4 billion by 2030 — a ten-fold increase.

How can we take advantage of this trend? I’ve got an idea for you…

Why Carbide Reigns Supreme

First, though, let’s explore what makes silicon carbide so valuable.

To start, it’s extremely stable. In fact, it’s so sturdy, it’s often used to make bulletproof vests.

Furthermore, silicon carbide hardly expands when heated. It doesn’t melt at high temperatures, either, meaning cracks in the material are rare.

This is a huge improvement over traditional silicon, which commonly cracks as a result of jostling or temperature changes. A single crack can stop electrical signals from passing, disabling an entire chip.

With these advantages, it’s no wonder silicon carbide is a natural choice for sectors like autos, aerospace, and energy…

And it’s these capabilities, along with the potential for higher voltages and faster EV charging times, that are the reason investment bank Canaccord Genuity believes silicon carbide production is about to skyrocket.

Examining the Market Potential

According to Canaccord, in 2021, there was enough capacity worldwide to produce 125,000 six-inch silicon carbide wafers. But by 2030, that capacity will jump to more than four million wafers.

And that’s only taking into account the EV market — a sector Allied Market Research estimates was worth $163 billion in 2020, and will grow eighteen percent a year until 2030, reaching more than $823 billion globally.

Modern EVs have up to 3,000 semiconductor chips inside, a number that keeps rising as more driver-assistance and safety features are implemented.

The thing is, each chip needs to withstand high temperatures, quick changes in speed and direction, and operate efficiently. That’s something only silicon-carbide-based chips can do…

And that’s where our investment opportunity enters the picture.

Introducing Cadence Design Systems

Based in San Jose, California, Cadence Design Systems (CDNS) is the product of a 1988 merger of two leading Silicon Valley software- and hardware-design companies.

Today, Cadence is the market leader in electronic-design automation (EDA), part of the semiconductor chip manufacturing process. Typically, this involves core development work on chips, circuit boards, and related hardware.

By relying on Cadence’s tools, equipment, and pre-designed chip templates, companies cut development time for new pieces of hardware by thousands of hours. In the fast-paced chip world, that translates to millions of dollars in savings. And this savings is critical when designing chips from a material most companies haven’t used before.

Late last year, the leading provider of EV chips, STMicroelectronics N.V. (STM) launched its third-generation silicon-carbide chips, capable of running cars at voltages as high as 1,200V.

The higher the voltage, the less power is lost in transit. That’s important when trying to squeeze as much range and power out of limited EV battery capacity.

Notably, STMicroelectronics uses Cadence’s EDA platforms to design, test, and develop new chips. And it’s not the only one…

A Who’s-Who of Customers

Cadence’s client roster reads like a who’s-who of companies angling to develop silicon-carbide chips for EVs and other applications. Notable customers include Bosch, Broadcom, Nvidia, ON Semiconductor, Qualcomm, Samsung, Siemens, Texas Instruments, Toshiba, and many more.

But Cadence does more than design chips. It also provides clients with out-of-the-box software for car chips. This enables chip makers and EV manufacturers to easily add infotainment, voice control, and advanced driver-assistance features…

All without having to make the software from scratch, and spend considerable time testing its effectiveness. (After all, creating something as seemingly simple as cruise control or lane-departure warnings would require years of testing.)

As mentioned, the switch from silicon to silicon-carbide chips will require lots of design work, even as the number and sophistication of car chips keeps rising, along with the amount of software these chips run. In short, the demand for Cadence’s software and hardware will only keep rising…

Meaning now is a good time to get in on this company.

Wall Street’s Loss is Our Gain

Helping our cause is the fact that Cadence’s stock is currently out of favor. Wall Street is discounting the company because of the global chip shortage, combined with the U.S.’s crackdown on chip exports…

But the thing is, Wall Street’s loss is our gain.

Over the last three years, Cadence has averaged per-share profit growth of twenty-six percent. And it’s on pace to more than double that growth this year.

Over the past five years, this company’s stock has achieved 291% gains. And trust me, there’s plenty of long-term potential up for grabs.

I suggest adding this company to your portfolio today.

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Sincerely,
Michael Robinson
Michael Robinson

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