Finimize - ⚔️ The US-China chip war

What’s going on here?

Coca-Cola reported sparkling quarterly results on Monday.

What does this mean?

Consumer staples companies like Coca-Cola sell products that folk tend to buy come hell or high water. So even though this year feels like the former, the beverage firm’s results were heavenly. Coca-Cola coughed up more for raw materials and shipping, sure, but it pulled up prices to help plug the gap. And soft-drink-aficionados were willing to spend big on the sweet stuff: they guzzled the drink, especially at public venues like restaurants and events. So even though the firm’s drinks were 11% more expensive on average, Coca-Cola sold 3% more. Tumblers were likely switched for champagne glasses in the boardroom: the company’s revenue and profit both smashed through expectations.

Why should I care?

The bigger picture: Buffett’s beverage.

Mind you, Coca-Cola must’ve done something right besides simply being a consumer staple. After all, Procter and Gamble’s results last week revealed slipping demand, despite the firm boasting expectation-beating results. There will be a, ahem, secret formula to the beverage firm’s success, for sure, but one key ingredient will be its dominance in the carbonated drinks industry, with only PepsiCo keeping it company. Add on its world-famous brand and a dependable dividend, and it’s no wonder why Warren Buffett’s long been a fan of the fizzy stuff.

For markets: PepsiOhNo.

Still, Coca-Cola’s stock has only crawled up 2% this year, languishing far below the S&P 500’s 8% pick-up – and rival PepsiCo’s in the same boat. There might be a couple of reasons for that. For one, the sector’s trading at a valuation around 25% higher than its historical average, so it’s far from a bargain. And for another, safety-seeking investors have a whole bunch of lower risk, higher yield alternatives now that interest rates are floating higher.

What’s going on here?

The US just played its latest move in the US-China chipmaking tech-off.

What does this mean?

The US has been doing everything it can to stay ahead in the tech race, including placing tough export controls on China to stop the country from getting its hands on the market’s most advanced chips. Well, the world’s second-biggest economy retaliated earlier this month, announcing a national security review into US chipmaker – and one of three memory chip market leaders – Micron. But since Chinese sales make up about a quarter of the chipmaker’s sales, banning the firm could cause it a major headache. The US jumped at that chance to go tit-for-tat, asking South Korea to tell its chipmakers not to plug the supply gap if China ends up banning Micron. That’s certainly the right place to ask: South Korea’s home to the other two market titans, Samsung Electronics and SK Hynix.

Why should I care?

Zooming in: It’s all in the timing.

That’s a tough ask for South Korea: its chipmakers’ jaws would drop at the mere thought of fulfilling a Chinese supply gap, especially now that the industry’s facing a massive glut and falling prices. Thing is, the US has timing on its side. South Korea’s president is taking a trip to Washington this week, and it’ll be hard to forget that the country’s exemption from tight US chip export controls will be up for renewal – or not – later this year.

The bigger picture: Lucky for some.

Now, some analysts doubt that China will replicate its push against US-based Micron in the more specialized sectors of the chip market, since the country’s currently too reliant on western tech. But either way, you can bet China will be ramping up its domestic tech development in a bid to become more self-sufficient. That would light a fire under Chinese chipmakers, which explains why news of the Micron probe sent other chipmaking stocks to the heavens earlier this month.