…both of us will benefit from increases in the price of Nvidia stock.
Paul Pelosi acquired 20,000 shares of NVDA (via a call option exercise) in June of this year. I’ve been an NVDA shareholder for several years, and sold part of the position at prices considerably more favorable than today’s price of $178/share.
Given that the CHIPS act, which is intended to benefit the US semiconductor industry, is now before Congress, concerns have been raised about whether Paul Pelosi’s purchase might have been influenced by insider information related by his wife.
I note that Nvidia is not thrilled with the bill as currently drafted: it provides benefits for semiconductor manufacturing companies, and Nvidia is not a manufacturer…it is a ‘fabless semiconductor company’, ie, a design, software, and marketing house. The actual manufacturing is done by contract manufacturers, especially Taiwan Semiconductor Manufacturing Company. Some market participants do, however, have hopes that in the final version of the bill the subsides will be expanded to encompass chip-design companies.
The bill would include ‘guardrails’ to prohibit recipients of the subsidies from making investments to expand chip manufacturing capacity in countries of concern, namely China. There may be an exemption for countries-of-concern whether that chips being made are at >28nm notes, ie, a long way from high-end. But one industry analyst said:
The guardrail doesn’t change that most of Intel’s or Texas Instruments’ test and packaging is done in China and will continue to be done in China. What use are new fabs for national security if they have to go to China for test and packaging anyways?
I think there are a couple of issues here. First is the issue of Congresspeople potentially profiting from inside information. The Pelosi buy does look very bad from this standpoint, especially when there are headlines associating Nancy Pelosi’s support for the CHIPS bill with increases in certain stocks–which include NVDA. It’s quite possible that this particular transaction is an innocent one, given that the bill as it stands is not one that Nvidia would have preferred, and also that NVDA price is now low enough, in the context of recent history and the general excellence and positioning of the company, that one could develop an entirely reasonable ‘buy’ case without benefit of any inside information. But the issue of officeholders profiting from inside information is a serious one, and becomes more serious with every further entwinement of government into the details of the economy.
But there is an even more important issue: Do we really want the level of investment in particular industries to be largely controlled by government? It is true that the semiconductor industry is vital to the US economy and to US national defense…but this is true of a lot of other industries as well. How about pharmaceuticals and their precursor materials, for example?…I seem to remember threats from Chinese sources to let American burn in the fire of Covid by withholding pharmaceuticals. What about large transformers, which are vital to the electrical grid and take a long time to manufacture? What about key minerals, many of which are in fact present in the United States but are mostly sourced from elsewhere because of legal and cultural hostility toward mining? What about machine tools?
I have low confidence in the ability of Congress, or of government in general, to determine what industries and what specific segments of those industries are truly vital. There are many complex interconnections which are not easily understood. I remember that during the pandemic, GE Healthcare was asked to produce a large number of ventilators in an accelerated timeframe. It turned out that they were using a very small contractor…a 3D printing shop, IIRC…which had been shut down as ‘nonessential’.
I’d prefer to see legislative solutions which improve the US business climate for manufacturers in general and for ‘thing’ businesses in general, to the crafting of specific ‘solutions’ for specific industries. Legislation should deal with the general case as much as possible, rather than functioning as a Reverse Bill of Attainder. But developing such legislation requires ability to think in abstract terms, and is not a comfortable to politicians who think mainly in terms of interest groups to be used or placated.
Here is the text of the CHIPS bill.
There is also a proposed broader US competitiveness bill, the United States Innovation and Competition Act.
Here’s a WSJ Opinion piece on the CHIPS bill and its proposed galactic expansions.
And here’s Intel CEO Pat Gelsinger and Ford CEO Jim Farley arguing the case for semiconductor subsidization.
Thoughts?
