The Semiconductor Imperative: Redefining Sustainable Investing

By Garvin Jabusch.

Image Source: Environmental Protection “The Role of Technology in Environmental Sustainability”

Traditional notions about what constitutes sustainability-oriented investing are a funny thing. For some, it can mean an oil company that is doing just a little bit better than most of its peers, for others, it means mostly stereotypically “green” investments, such as solar and wind energy. But true sustainability isn’t about incremental shifts or narrow niches; for us here at Green Alpha, it means investing in companies whose products and services contribute meaningfully and directly to building an economy that exists in a state of stable, low-risk planetary harmony. Our methodologies for determining what does and does not qualify under this definition are spelled out in detail here, and more concisely summarized in our four pillars of the Next EconomyTM concept here.

Where do advanced semiconductors fit into a framework of long-term stability? The answer is everywhere. That industry’s leaders are today the indispensable bedrock of the global economy, and true, indefinite sustainability is impossible without them. Green Alpha’s significant presence in semiconductor verticals stems from this profound recognition and underscores our long-term outlook.

As we look forward over the next couple decades, the trajectory of demand for computing power is unmistakably upward. The reason for this is deeply intertwined with the fundamentals of economic and social prosperity. At the heart of any economy that successfully uplifts its people is the dual capacity to effectively leverage energy, and to harness information for projects and enterprises that matter. Conversely, it’s a well-established pattern that societies lacking in access to energy and information simply don’t achieve desirable economic or social outcomes.

Take, for example, the challenge of treating conditions like advanced cancers, many of which have long been considered untreatable. The key to unlocking potential treatments lies in deploying machine learning to sift through almost unimaginably massive datasets of biomarkers. This endeavor is only possible via compute-intensive AI.

Similarly, realizing a distributed, renewable energy grid isn’t merely about solar panels and wind farms. It demands sophisticated digital systems–powered by semiconductors as their brains. The same goes for educational advancements. The promise of e-learning and personalized AI coaching as tools for expanding human capital is fundamentally reliant on computing resources.

And when we think about moving away from the old, inefficient models of industry and agriculture toward more sustainable, circular processes—whether that’s developing advanced materials, innovating new methods, or implementing systems like controlled-environment agriculture—the common denominator is again the need for enormous compute resources.

Crucially, companies like Taiwan Semiconductor Mfg. Co. Ltd. (TSMC, NYSE ticker TSM) represent the manufacturing linchpin of this semiconductor revolution. Their innovations underpin progress across countless fronts, shaping the very infrastructure of a more efficient, sustainable future. Whether it’s smart manufacturing, precision agriculture, or optimized energy, TSMC’s technology unlocks game changing innovation. TSMC’s market dominance is unassailable, exceeding 90% market share at several of the cutting-edge nodes, such as 7nm, 5nm, and below. No other semi manufacturer in the world comes close to providing the advanced AI capabilities needed to solve the globe’s critical problems. (Note here that this dynamic is not as applicable to the larger-node, earlier generation chips designed and produced by suppliers like Infineon Technologies AG (ticker IFNNY). While immensely valuable for countless applications like running the various control systems in our cars, industrial control, and power management, this tier of the semiconductor industry is not where advanced problem solving and the largest productivity gains are emerging.)

TSMC’s dedication to sustainability is authentic; they publish detailed reports outlining their progress towards specific sustainable economy targets. This transparency is instrumental in maintaining accountability and showcasing the real-world impact of their efforts. By focusing on sustainable innovation, TSMC exemplifies how semiconductor technology can drive positive planetary change.

Examples include:

Climate Action: TSMC’s cutting-edge chips are designed with energy efficiency at their core. These chips power devices and systems that consume less energy, reducing emissions and contributing to the fight against climate change. Furthermore, TSMC is dedicated to increasing its own use of renewable energy and has set ambitious carbon reduction targets.

Health and Education: TSMC’s semiconductors enable advancements in medical imaging, AI-powered diagnostics, and remote health monitoring, helping ensure that quality healthcare is more accessible. Similarly, these chips support personalized learning platforms and make education more effective and widespread.

Investing in such industry leaders aligns with Green Alpha’s commitment to the long haul. We recognize that semiconductor development, while not without its own environmental considerations, fuels optimization, enhances renewable energy grids, drives precision agriculture, and makes countless systems smarter. These advances have multi-generational impacts.

This understanding shapes Green Alpha’s long-standing commitment to portfolio exposure to semiconductor innovation. In a world striving for balance and progress, sustainable investing cannot afford to be myopic. It must boldly recognize and support the forces driving technological transformation, none more important than advanced semiconductors. Investing in this sector isn’t simply smart; it’s an investment in a true, lasting state of planetary harmony. From a pure asset management point of view, it is also visibly one of the most important economic growth drivers of the foreseeable future.

How much growth can we expect? As the Eurasia Group discusses in a recent edition of their GZero AI newsletter, “Sam Altman, CEO of OpenAI, needs more chips. He needs a lot more chips. The only thing stopping his $100 billion startup—if you can still call it a startup—may be the current supply of powerful chips…Altman is deep in talks with investors to raise $5-7 trillion for a new chip venture.” Eurasia Group goes on to note that this capital raise alone is larger than the present size of the entire semiconductor industry.

Altman is right, the amount of computing power we will need far exceeds today’s entire capacity many, many times over. It’s hard for us at Green Alpha to imagine a more critical, problem solving, exponentially growing industry. And, frankly, whether the goal is a sustainable economy or investment return, or in our case both, it is simply inconceivable to avoid portfolio exposure to the key firms involved.

Just ask yourself, what kind of capabilities and growth does Altman foresee that he believes we need $7 trillion worth of semi manufacturing capacity to make it happen?

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At the time this was published, some Green Alpha client portfolios held long positions in Taiwan Semiconductor Manufacturing (ticker TSM) and/or Infineon Technologies (ticker IFNNY). These holdings do not represent all of the securities purchased, sold, or recommended for advisory clients. You may request a list of all recommendations made by Green Alpha in the past year by emailing a request to any of us. It should not be assumed that the recommendations made in the past or future were or will be profitable or equal the performance of the security cited as an example in this recording. To inquire whether a specific Green Alpha portfolio(s) holds stock in any particular company, please email us.