Jose Najaro (4:12)

Yeah, I mean, I think Lubuton is trying, obviously. I think when you start off as a CEO, you have the opportunity to do the massive restart button or kind of touch that button right off the bat because I guess that's your main job as starting off. And that's what he did. He definitely hit the restart button pretty hard. He even talked a little bit about the target workforce, intel. Typically for the past five, six, seven years, Tim has had over 100,000 employees. He wants to drop that down to 75,000 by the end of this year. That alone kind of completely reshapes Intel.

Tim Byers (4:47)

It's a big cut. Yeah.

Jose Najaro (4:49)

And now with those restructuring costs, the great thing is there might be a little bit of light within. There is what he's doing is there was a lot of older equipment that still had, in theory, plenty of life available to itself. If they had the demand, they had purchased a lot of new equipment for some other A, 18 A, 14. So what he wants to do is look, even though this older equipment in theory still has life available to it, let's kind of push that old equipment out and we got to use this new equipment instead because we used, we bought it, we got it new, it has better yield rates. Now we have to write off that older equipment that still had its life to it because we don't have the demand for it. So the restructuring definitely was painful, but at least it was more on older equipment opposed to equipment that just got bought like a year or two ago.

Tim Byers (5:38)

Fair enough. I mean, this restructuring is going to be ongoing. You mentioned there 18A and 14A, these are the, the newest and smallest form factor manufacturing platforms for chips and this is where they're going to build like their most advanced AI chips, for example. So make a prediction for me, Jose. You're looking ahead. Big investments in Intel Foundry, trying to streamline, trying to restructure. In what year do you think Intel Foundry as a functional part of this business is going to turn profitable? When do you think it's going to happen?

Jose Najaro (6:17)

All right, so let's see. So I think this is how I would see my optimistic timeline would be right Now Intel's releasing 18A for internal usage and it's going to stay for internal usage. The actual chips won't come out till later this year.

Tim Byers (6:32)

So.

Jose Najaro (6:33)

So the consumer and kind of everybody is not going to see how strong 18A is till 2026. So 2026 is going to be that era or that time when we validate. At least intel is a strong manufacturing player. Then that will potentially give customers a reason to try out maybe 14A in the future. But that takes some time. So if I was to get some form of profitability, it would definitely be, well, 2028, maybe even 2029. It's definitely going to be at the end of this if it happens. It's most likely to happen at the end of this decade, not within the next two years or so.

Tim Byers (7:11)

I'm going to go with 2030.

Jose Najaro (7:13)

Yeah.

Tim Byers (7:13)

All right, we're going to take a quick break here. Up next, is now the right time to be investing in the semiconductor industry.

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Tim Byers (7:53)

I'm here with Jose Najaro and we are talking about semiconductors. We just talked about the intel earnings, Jose, and lots of, lots of things to improve there. They have a lot of restructuring underway. A lot to do and not a, not a very long time to do it. But there were other earnings. We had earnings from asml and despite the top and bottom line expectations, you know, beating on, on both those Those counts. The company now says that tariffs have made forecasting impossible for, for the moment. How, how concerned are you about that? I mean, didn't we just get a deal with the EU over the weekend?

Jose Najaro (8:35)

Yeah. So hopefully the deal with the EU helps improve the commentary from leadership from asml. I think with asml, looking at it in the whole semiconductor market is maybe not the best approach because ASML at the end of the day only really has a handful of big customers, right Tim? It has the only ones. And for those that are not familiar, asm, these important critical machines that are used for the manufacturing of semiconductors. So only manufacturers go out there and buy ASML machines. Those are your TSMCs, your intels, like we just talked about in the last, in the prior segment and your Samsung. Those are usually the top three giants. And if any of them see any hiccup in maybe I don't need to build a new supply chain line right now. You're going to see those revenues really, those bookings, those revenue really fluctuate. And as we heard from intel, they're slowing down on capex. So that definitely can be seen as a negative take for asml. Now on the other hand, we did have some great earnings from TSMC which kind of prompt that they are going to increase capital expenditure. So I think for asml, the long term thesis is still pretty much intact by 2030. They still believe that they can expect somewhere between 44 to 60 billion euros by fiscal year. I think most recently last 12 months is about 32 billion. So it's still a hu. There's still a nice growth opportunity. I think that's still in place. I think right now it's just the short term of how manufacturers are going to look at this consumer demand for semiconductors. I don't think the, I think we might see a bit of a hiccup this year, maybe even next year. But I think the long term tailwind for long term investors is still pretty much in the good side of, of, of asml.

Tim Byers (10:18)

Yeah, do yourself a favor fools. If you, if you want to get a sense of what ASML makes, go look up, you know like a short video or get a picture of one of these big EUV machines. They are giant, they look like they belong in a super villain's lair. They are enormous. But you did mention Taiwan Semiconductor. Net revenue was up 44% year over year and that missed expectations. What the heck is going on here? Are we, this is, this is my other question for you, Jose. Like are the expectations baked into Semiconductor stocks too high at this moment?

Jose Najaro (10:57)

I think yes. First, let's kind of talk about that expectations. Big thing. I think for AI semiconductor companies. The answer is yes. I mean, we've seen a lot of great sentiments on, on amd, on Nvidia and some of these other players. I think on other segments there are semiconductor, semiconductor players that are in the automotive space, in the analog, in the kind of industrial, robotics, industrial markets. All those are still pret. So there's not much expectations there. Another one that there's not much expectations in, Tim, are the equipment players. We saw it from asml. Right. There's not much expectations right now in the short term for those companies, but I do believe those sectors in the long term have a good opportunity. Even though the short term. Right. Automotive, we don't know when that market will pick up. But I do believe we're going to get smarter vehicles. We're going to need more vehicles, electrified vehicles, a little bit autonomous vehicles in the next five years. So growth opportunities for a lot of markets. I think the one that's running hot and might have too much expectations would be more the AI chip market.

Tim Byers (12:01)

I think that's fair. We have some data from the Semiconductor Industry association just to kind of take, take this a little further. They said that annual global sales across all semiconductors are on Track to grow 11.2% in 2025 and global sales in 2026 are going to grow 8.5%. So a little bit of deceleration there. Is that at all surprising to you or is this just part of the cycle? Because this has historically been a cyclical business.

Jose Najaro (12:35)

Yeah, I think it's part of the cycle, Tim. I mean, we still have uncertainties of how consumers are going to be doing with spending, with any random events that might come with tariffs or which I'll sell, job market or anything. So I do believe maybe a lot of these short term expectations are somewhat, a little bit conservative or cautious to make sure they, they try to account some of those random events that could occur that could bring some of the consumer market down. In the long term, I think by 2030 we still have a lot of firms believing that the semiconductor market will hit a trillion dollars. So for 20, $30 trillion, how we get there in the short term might be a little bit wonky. But as you're seeing more demand for AI, eventually we're going to have AI products entering the consumer space. So you need more chips on your phone, more chips on. If we have kind of augmented AI glasses, autonomous vehicles, and the list goes on. So there's so many products that you can start to add AI to, and we're already seeing that in place. When is the consumer going to pick that up? I don't know, but definitely before 2030.

Tim Byers (13:39)

All right, next we're going to do a bit of trivia and then we're going to do a ranking of some of the best semiconductor stocks across the value chain. Up next, a little trivia about the semiconductor value chain and we're going to rank some stocks in that value chain.

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Tim Byers (14:26)

All right, Jose, as I tend to do on these shows, we like to have a little trivia, something to educate as well as maybe inform and, and you know, get a little laughs from, from time to time. But this one I think is going to be interesting. So fools, if you don't know this, the semiconductor value chain is pretty extensive. It's also global. So Jose, here and fools, get in your answers. Let us know what you think in. In comments to this podcast, can you name all the links in the semiconductor industry value chain? And my hint to you, which you probably don't need, but there are seven. This is from Gemini Advanced. It gave me seven links in the semiconductor value chain. What do you got for me?

Jose Najaro (15:20)

Hopefully I get this right, Tim, and hopefully Gemini didn't hallucinate with us here, but for me, let me just say I would think the first when I think of semiconductors is your materials, right? Your silicon, your gold, copper, whatever is needed to make that semiconductor product. Those materials needed for the manufacturing process.

Tim Byers (15:38)

Okay, you got one, you got one. I'll count them off as you get them.

Jose Najaro (15:42)

All right? Then after that is what do you do with those materials? You make the products. But how can you make the products? The equipment. So your companies like asml, the manual, the manufacturers of the equipment needed to make the semiconductors, so be it. Your asml, your LAM research, but overall, the equipment needed for manufacturing.

Tim Byers (16:03)

Okay, you're going to have to, you're going to have to break up those manufacturing pieces. I'll give you a Hint there, but, but I'll say that's two. Keep going.

Jose Najaro (16:11)

Okay, all right, so we'll break that up maybe in a bit. Then number three would be who uses those equipment? So it'll be the manufacturers themselves. So it'd be like your tsmc, your intel, your Samsung, your advanced packaging players, your osat. So that would be my number three is materials, equipment makers.

Tim Byers (16:28)

You got that one.

Jose Najaro (16:29)

Manufacturers. Then after that is what are these players manufacturing and how are they getting these design? So for me, the next would be kind of like that software, kind of like your EDA solutions, the way you built those blueprints. So that'd be your cadence, your synopsis.

Tim Byers (16:45)

Yeah, there's another. So you got four.

Jose Najaro (16:47)

Then after that is who's actually designing this. So it'd be kind of like your Fabless or your designers in theory, your nvidias, your amds, your everybody else. So that would be the next, next on the list.

Tim Byers (17:00)

That's five.

Jose Najaro (17:01)

The next thing is they just once you have a semiconductor product, you still need to make the end Good. So your OEMs or your ODMs who end up making the PCs, who end up making the AI servers, who end up making the phones with these semiconductor products. So it would be however that gets built. And then after that I would have to guess is the end user either being maybe your consumer who buys the product or your cloud server providers who are buying these servers to kind of make the cloud and space.

Tim Byers (17:32)

I mean I could, I, that's a, that's a fair argument, but it's not on the list. Oh no, let me give. No, but, but I, I think you credibly got six there. So I'll give you the list and this is the order it goes in. Eda, Electronic Design Automation, you got that one. Chip design, Fabless companies. You got that one. Raw materials and equipment. That was the first thing you said. That's right. I told you they broke out some of the equipment manufacturing. So the next one they had is one Wafer fabrication. And you mentioned lam research. So wafers and then assembly, packaging and testing. They, they have. So again, breaking it out. But then you mentioned directly integrated device manufacturers. You mentioned them. Absolutely right. And then distribute, distribution and, and, and OEMs. Yeah. So I, I, I, I, I think you mostly nailed it there. But I want you to rank, since we just talked about the value chain, let's rank a few companies on that value chain. So I've got six for you, if you can give me a one to six. And then we'll close things out here. I've got Cadence in eda. So you know, equipment, asml, Fabless design, Nvidia, also Micron, similar but in memory wafer manufacturing, Lam because you mentioned them earlier and then at the foundry level, you know, oh, we have distribution, you know and manufacturing at scale, Taiwan Semi. So those six Cadence, asml, Nvidia, Micron, LAM Research in terms of ability to outperform over the next five years, give me your 1 to 6 ranking.

Jose Najaro (19:16)

Yeah, so obviously I'm going to be looking at today's prices and that's going to play a good port. Roll into this. I would say number one for me would be asml. Tim. It's weird. The reason being is I think the market is not expecting a lot from them but I think the overall long term tailwind is there.

Tim Byers (19:34)

Fair enough.

Jose Najaro (19:35)

Number two, I'm going to go with Nvidia. I think while Nvidia is probably the most expensive $4 trillion I put it into because I do believe the AI market is going to grow from here. We're still in early innings. We're just in the search and kind of some research of it. But AI is going to do more than that. Number three, I'm going to go back to a semiconductor equipment. I do like LAM Research. LAM Research has a little bit more unique play in the memory market and I believe the memory market has a nice kind of growth story ahead. It doesn't matter if Nvidia is the winner or who's the winner. LAM Research provides equipment to kind of build a lot of these HBM solutions. So number three would be LAM Research. Number four, I think I would put Micron. I think Micron, while it is normally a little bit more risky play because of the cyclicality within the business, I think right now hbm, as long as they continue and that's important as long as they continue to innovate, I think Micron has a nice future from here. Number five, I'm gonna put tsm. The world can't run without TSM right now. I mean we see intel doesn't have the demand. Samsung is not doing too well either. TSMC continues to see nice strong growth.

Tim Byers (20:50)

They are the heavy.

Jose Najaro (20:51)

Yeah. And while it is crucial, number six, I'm going to go with Cadence. I think Cadence is extremely important. I just do think valuations in some of these software EDA plays has kind of maybe a little bit ballooned. That maybe don't make me too confident on market opportunities right now. But luckily the market always gives us opportunities. If we had a better price point. Cadence would definitely be a little bit higher than it is in the list right now.

Tim Byers (21:18)

All right, there you go. So we have ASML Nvidia. So give it, give it to me one more time. ASML Nvidia. You put Micron 4th, Lam Research, Lam, Micron, TSM, Taiwan, Semi and Cadence. And then Cadence. Yeah, all right, great. Thanks for that, Jose. Fools advertisements are sponsored content and provided for informational purposes only. The Motley fool and its affiliates collectively tmf, do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale or solicitation of any securities advertised herein and makes no representations regarding the suitability or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. Learn more about your ad choices, visit Megaphone FM Forward slash adchoices thanks to my guest, Jose Naharo. Adam Landfair is our engineer for this episode and our producer is Anand Chakabalu. I'm Tim Byers. Thank you for tuning in to Motley Fool Money. See you again tomorrow.