AI is the biggest trend this year, and we expect it to continue in the months and years ahead.
Just look at the numbers… We recently said that NVIDIA, the world’s most prominent manufacturer of graphics processing units (or GPUs) used to train AI models, had a blowout quarter. Its revenue doubled, and its net income soared 843%.
Just this year, the company’s share price has increased more than 227%.
But there is a problem.
And if it doesn’t get solved, the AI boom could stop.
The fact is that the AI megatrend relies on a little-known industry that supplies companies like NVIDIA with something that they absolutely need to build chips.
Rare Earth Elements Are Crucial for the Semiconductor Industry
As a reminder, rare earth elements are a group of seventeen metallic elements.
They are critical for high-tech industries such as semiconductors, electric vehicles, smartphones… You name a high-technology appliance, and there’s a high chance that it relies on rare earth elements (or REEs).
The semiconductor industry, which builds AI-capable chips, also relies on them.
They enable semiconductor equipment manufacturers to build machines that perform highly sophisticated processes such as physical vapor deposition, etch, and high-density plasma chemical vapor deposition.
In other words, they are essential for the chips industry and the AI revolution.
But there’s a challenge.
U.S. Aims at Achieving Semiconductor Independence
Most of the rare earth elements used in the United States are imported from China.
That’s problem number one.
And most chips that NVIDIA designs are produced at manufacturing facilities in Taiwan… which has become a geopolitical hotspot.
That’s problem number two.
What is the solution?
The United States needs to find a way to source rare earth elements either domestically or from friendly nations such as Mexico and Canada.
And it needs to continue supporting the construction of domestic semiconductor manufacturing facilities.
The latter is already happening. TSMC, the world’s largest semiconductor foundry, plans to build a chips factory in Arizona.
And NVIDIA’s CEO Jensen Huang has said that the company plans to source its chips from that facility “so we have a lot of diversity and resilience designed into our supply chain,” according to Reuters.
In turn, the U.S. government has passed a $280-billion CHIPS act aimed specifically at domestic research and manufacturing of semiconductors.
But it doesn’t explicitly support rare earth miners.
The market will need to step in and make sure that there are enough raw materials available for the manufacturing of chips in the United States.
This is an excellent opportunity for mining companies operating in the rare earth area.
If the government steps in and announces that it will also provide funding or tax breaks to REE miners, this industry could only accelerate.
This is one of the key areas where we are looking for opportunities now… stay tuned.
And there are early signs that it could happen.
Both major parties in the United States are in agreement that the country needs to become more independent from China. That includes technology and semiconductors.
But one presidential candidate spoke about it specifically. Vivek Ramaswami, a Republican candidate, said:
We are dependent on a tiny island nation off the southeast coast of China for our entire modern way of life in the United States of America. I think many Americans need to internalize that fact. We would not live a modern lifestyle if it were not for the global semiconductor supply chain, specifically leading-edge advanced semiconductors that come from Taiwan. That’s a great vulnerability for us, especially as we enter a period where I believe that China is likely to make a move to annex Taiwan in the next decade. I think that’s a real threat that we face.
This problem is serious, and the Financial Star shares Mr. Ramaswamy’s concern.
We also agree that the only path forward is for the United States to achieve semiconductor independence.
Domestic mining companies and those located in friendly nations will be key to solving this critical issue.
Investors should pay attention to this space.
Thank you for your loyal readership,
The Financial Star team