Semiconductors

Some of the largest companies in the world by market cap include Semiconductor companies (such as Nvidia with a market cap of USD 3.52 trillion (against Microsoft, which is largest with USD 3.55 trillion market cap). Apple, Amazon and Alphabet follow with market cap between USD 2 to USD 3 trillion. At number 9 is another semiconductor company TSMC with market cap of $1.1 trillion (Broadcom is no. 8 with market cap of $1.17 trillion, this too is related to semiconductors, is a chip designer.)

But first, a broad map of the companies and the industry. 

Samsung seems to operate in both foundries (manufacturing) and integrated device manufacturing, but then it is present in many many industries (and hence its market cap does not figure in top 10, although by revenue, it is perhaps 26 ranked globally, but by market cap, 33rd, and that too recent price increase. What I mean to imply is that there is currently much higher valuation relatively for chip designers than for founderies alone.

For example, see this infographic, showing January 2025 market cap of key semiconductor companies.

What is interesting is the share of market cap of companies in US, because these are mainly design companies. Others are manufacturers. China seems to have small share in market cap. But this is not the true chart of the industry, this just shows valuation - and design IP seems to command a very high premium.

Here again is the first chart now explaining a bit more of the value chain. The top portion shows the key value chain of companies each operating in its unique space - some as designers, some as foundries (manufacturers), some for testing. And the bottom boxes are integrated players, performing all these functions inhouse. (This affects valuation of each set). The middle boxes are service providers or raw material suppliers supplying to both fabless and integrated players.

An indication of revenue: Nvidia is ~$149 billion, Intel is around ~$53 billion, TSMC is around $88.34 billion (this are around pure play. Other big players have several other business interests).

Semiconductor

Now that we see the broad set of players in this space and have some sense of market context, what is a semiconductor?

Semiconductors are critical to modern life. According to economic historian Chris Miller, “You can’t understand the modern world without putting semiconductors at the center of the story.” But many people have a murky understanding of what a semiconductor actually is. A first step would be to break down the word. A conductor is something through which electrons freely move from one type of material to another. Have you ever gotten a shock in the winter from touching a doorknob? That’s because metal is a great conductor of electricity. (In fact, so is the human body, which is why you can sometimes pass the shock on to someone else.) The opposite of a conductor is an insulator, which impedes the flow of electrons from one material to another. Rubber is a great insulator, which is why it’s safe to be inside a car (with rubber tires) during a lightning storm.

A semiconductor is a class of materials that falls somewhere on the continuum between conductor and insulator. Manufacturers process silicon and other materials into wafers, which are then lithographically printed with various functionalities. The wafer is then cut into the chips that make up semiconductor devices, which enable all kinds of machines to harness electricity for processing power. Semiconductors are in greater demand than ever: The Fourth Industrial Revolution (4IR), which is currently transforming manufacturing, production, and, more generally, global business, is characterized by smart computers and connected devices. Smart means connected, and connected means semiconductors.

While semiconductors can create a wealth of opportunity for industries around the world, reliance on semiconductors could also introduce some vulnerabilities. In this Explainer, we’ll explore the pandemic-era semiconductor shortage, how organizations can mitigate the risks associated with reliance on semiconductors, and why semiconductors stand to dominate the next decade in global business.

Rest of the article here.

McKinsey analysis suggests that industry revenues will climb to $1 trillion by 2030 (exhibit). - from around $600 billion in 2021.

In terms of physical dimensions:

As small as a fingernail, semiconductors are arguably the most complex products ever manufactured. A common chip is only about 1 millimeter thick and contains roughly 30 different layers of components and wires called interconnects that make up its complex circuitry. Billions of microscopic switches called transistors make semiconductors work.

According to Intel:

$10-15B - The approximate cost to build a new semiconductor factory or “fab”
$574.1B - Global semiconductor industry sales in 2022

The making, or fabrication, of semiconductors is one of the most complex and sophisticated processes in all of manufacturing. Semiconductor fabrication requires precision down to the nanometer (that’s one-billionth of a meter), atomic ordering, and high chemical purity. And many semiconductor fabrication plants have daily quotas of thousands of wafers and chips.

One key process in semiconductor manufacturing is lithography. Lithography involves coating a wafer with a light-sensitive material called photoresist, shining light through a mask (which contains the chip’s pattern) onto the wafer, and chemically developing the exposed areas of the wafer to reveal the pattern. This patterned layer ultimately serves as the guide for building or removing materials in specific regions of the wafer, which determines the final, detailed structure of the chip.

Strong semiconductor ecosystems can be found all over the world. Here are five of the largest:

• At just three square miles in size, Hsinchu Science Park in Taiwan is home to three universities, more than 150 semiconductor companies and suppliers, more than 600 manufacturers, and more than 160,000 highly skilled full-time employees.
• Silicon Saxony, centered in Dresden, Germany, is the largest semiconductor cluster in Europe and contains more than 400 industry actors, universities, and research centers. Over the past 20 years, Saxony has more than doubled the number of employees in the country’s semiconductor industry.
• In South Korea, the cities of Giheung, Suwon, and Icheon are part of the country’s semiconductor mega cluster. The nation plans to invest about $470 billion through 2047 in partnership with major South Korean electronics companies.
• China is also a major producer of semiconductors. Shanghai, Beijing, and the provinces of Jiangsu, Fujian, and Guangdong are all hubs. And China is scaling up fast: Of all the fabrication plants that are currently under construction, about half are in China.
• In the United States, semiconductor companies have announced investments that are estimated to reach $200 billion to $350 billion within the next decade—with the largest investments in Arizona, New York, Ohio, and Texas.

As to what really is a semiconductor:

To a materials scientist, a semiconductor is a crystal with atoms and defects; to a physicist, it has a conduction band and valence band; and to an electrical engineer, it has electrons and holes.

You can see semiconductors in the frame of energy, which typically device physicists do. They see two energy bands – a conduction band and a valence band – and a very important energy gap (aka bandgap) that separates the two. The bands are full of “rooms” for electrons, which are called states. In the conduction band, only some of the states are filled with electrons and the others remain empty, where the electrons can jump into. This is how a semiconductor conducts current. A valence band, which otherwise is full of electrons, has some empty states that are called “holes”. Holes are positive in charge and electrons are negative. They can combine to emit light or generate heat!

If you see through the lens of charges, like an electrical engineer, the current in a semiconductor is generally carried by electrons or holes, or both.

Last but not least, through the lens of a material scientist, we have lattices – a repeated geometrical pattern – of atoms that create a very crystalline structure. Sometimes you will have one or two atoms or more missing from a given set of lattices and those give vacancies, or defects.

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All information in a computer is transmitted or stored in forms of binary digits – zeros and ones – and these zeros and ones are ‘voltages’ that are generated, transmitted and stored using little switches made out of transistors and diodes, and those are made of semiconductors. Powering up a computer to function also happens through semiconductor switches.

 

J1 & 2. Sovereign Wealth Funds

This morning I heard a podcast exploring a SWF by USA. So here's a general exploration of the context.

Overall Size

"With more than $12tn in assets (2024), SWFs have the power to move the dial on everything from healthcare to the energy transition, with emerging markets and private equity key targets for investment." For comparison, in the year 2000, SWFs held $1.2tn in assets" 

100 largest globally holding $13.7 trillion in assets. (2025). Top 10 have $9.6 trillion in assets

History & Raison d' etre

The term SWF was coined in 2005. 

SWFs in their early form often started out as commodity stabilization funds and grew from there.

Oldest -   "Kuwait Investment Authority, for example, established in 1953, was an early sovereign fund used to manage the Gulf nation’s then burgeoning oil wealth."

Then, between 2000 and 2010, 56 SWFs were created! Perhaps both the countries realised the value, and enough wealth to manage.

Although, still mainly Gulf region (oil wealth). 42% of global sovereign wealth assets are in oil-rich Middle East and North African (MENA) region countries. The next biggest placement of SWF wealth is Asia (34 %), followed by Europe (17 %). ANZ (4%), North America (3%).

Norway has the largest SWF.

What is a sovereign wealth fund (SWF)?

A sovereign wealth fund (SWF) is a state-owned investment fund, a type of institutional investor that invests for the benefit of a country’s own economy and citizens.

SWFs hold, manage, or administer assets to achieve their financial objectives. Goals often include diversification to help stabilize their country’s economic base, improve the management of their public finances, and support high-quality growth at home and abroad.

SWFs take a variety of forms; fiscal stabilization funds, savings funds, reserve investment corporations, development funds, and pension reserve funds without explicit pension liabilities.

Cross-border investing is a feature of sovereign wealth funds. Their investments have helped promote growth, prosperity, and economic development in both capital-exporting countries, where there is excess wealth to invest, and capital-receiving countries, where investment is sought.

SWFs also bring substantial benefits to the global markets, as long-term investors can ride out shorter-term business cycles in a way that can be extremely beneficial, particularly during periods of financial turmoil or macroeconomic stress.

Sovereign wealth funds fall into two camps with their sources of wealth:

Commodities: exports that are taxed or owned by the government (such as Norway, Kuwait ?)

On-commodities: revenues from the transfer of assets from official foreign exchange reserves (such as China, Singapore?)

 The basic design and operating model of these resource-based funds was to facilitate balancing public expenditures (consumption) with the long-term accumulation of financial assets (savings), so

as to sustain government spending and investment levels long after resources revenues ended. Derived from the permanent income hypothesis, this approach is bounded by the capacity of both the local  economy and local capital markets to absorb large flows of new capital

Part of the issue per the podcast about US was unlike Norway, it does not tax the oil (although it is the largest oil producing country in the world), it subsidises it.  

Following from Visual Capitalist: 

Norway runs the largest globally, thanks to its vast oil and gas production in the North Sea, which generates 10% of the country’s GDP.

In 2024, the fund earned a record $222 billion in profit fueled by strong gains across the tech sector. Last year, Apple, Microsoft, and Nvidia stood as the fund’s top holdings.

Following next in line are China’s two biggest funds, holding $2.4 trillion in assets. In particular, these funds play a key role in financing the Belt and Road Initiative and other strategic industries. Through these funds, billions have been invested in railroads, green energy, and mining projects across Africa. Notably, Chinese investment across the region is 2.5 times greater than Western nations put together.

Ranking in fifth is Saudi Arabia’s Public Investment Fund, with $925 billion in assets. Over the past decade, it has made a $3.5 billion stake in Uber, along with investments in Nintendo and Heathrow Airport. In 2025, the fund plans to invest $1 billion in sports streaming service DAZN.

As to how it has grown, consider the infographic below, from just 4 years ago, 2021:

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One of the interesting top 10 funds is Indonesia with assets of $600 billion. (8th largest). Others being Gulf, Norway, China, Singapore, HK.

Earlier in 2025:

Prabowo signed a document at the presidential palace in Jakarta initiating the new fund known as Daya Anagata Nusantara, or Danantara, which is modelled on Singapore's investment arm Temasek and received approval this month in a parliament dominated by the president's ruling coalition.

"It is not just an investment body, it is an instrument for national development that will optimise the way we manage our wealth. We are committed to being a developed nation."

The government has not specified which state-owned companies will fall under control of the fund but Prabowo has said he wants it to manage more than $900 billion in assets.

Danantara will be Indonesia's second sovereign wealth fund, after the Indonesia Investment Authority which was launched in 2021 and holds $10.5 billion in assets.

The recent establishment of the Indonesian sovereign wealth fund (SWF), Danantara, has sparked controversy due to its funding coming from a large sum of the state budget, freed up by the government’s austerity program. Despite its transformative potential, ongoing entanglements of politics and business risk undermining Danantara’s success.

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Following a couple of interesting points:

a) The report talks about Texas Permanent School Fund (TPSF) established in 1854 (state forefeiture wealth to education, and since through oil and gas)

b) Very few long standing SWF. So the idea of longevity is more a notion/hope and exception than reality. (This goes in direct discussion with Limited Life idea)

c) The idea of SWF in a way is to transform Natural Resources Wealth to Financial Wealth.

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SWF and oil

Many SWF are driven by petrodollars, and the change in oil prices also impacts their fortunes. "Prices hit record highs in 2012 at $109 a barrel – a remarkable rise from $1.82 in 1972 – and after a period of volatility the price is currently back up around $90 a barrel."

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It is a changing world in terms of asset ownership. The tides or sand-dunes of ownership keep shifting over time. In older times, perhaps might was driving ownership by nations/kingdoms. Now it is capital, often fuelled by country's physical resources or trade and development prowess.

So some of the largest companies in the world have SWFs, Pension Funds, Insurance Funds, some of the world's largest Mutual Funds apart from private investors. And then mines in Africa are owned by China SWF. And Heathrow by .... and real estate in India by GIC. Some of these fund large infrastructure projects. A slow shift in world's asset ownership... 

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SWF investments

• Mubadala - Tech Investments
• Largest global companies
• Private Equity, increasing investments
• Emerging Markets
• Sustainable goals (ESG) - slowly opening to these
• In Africa, other places, real estate

And to put the above assumption about SWF investments and asset ownership in context:

Although the total participation of SWFs remains small, the influence of SWFs manifests itself in megadeals, which are transactions valued at more than $5 billion. As such deals are infrequent yet large, there is typically significant media exposure, which amplifies the position of SWFs as major players in global capital markets.

In the period from 2008 to 2019 SWFs joined at least 38 megadeals, such as the China Investment Corporation’s $13 billion acquisition of European logistics company Logicor, the commitments made by the Saudi Public Investment Fund (PIF) and Abu Dhabi’s Mubadala in Japan’s SoftBank Vision Fund ($45 billion and $15 billion, respectively), the participation of ADIA in the large buyout consortia of ThyssenKrupp’s elevators unit ($19 billion) and Nestlé Skin Health ($17 billion) and GIC’s acquisition with Brookfield Infrastructure Partners of US railway firm Genesee & Wyoming ($8.4 billion). Nonetheless, direct SWF involvement in M&A megadeals is still limited. Consider that in 2019 there were 98 deals closed worth at least $5 billion globally (Aliaj et al. 2020). SWFs participated directly in just four of them.

Ultimately, despite the growing number of SWFs and their aggregate assets under management, there are few SWFs among all global financial actors that have the size and transact in sufficient volume to impact markets on a global scale. In this context, we refer specifically to the capacity of certain SWFs to influence market trends, investor preferences, deal terms and pricing structures as a function of their scale, market presence and reputation. Other such actors include major central banks, some international finance institutions, major investment banks, institutional asset managers and large pension funds.

In this regard, then, some SWFs can indeed be as influential as large institutional investors. For instance, the investment practices of Norway’s GPFG, as we show in this chapter, have important signalling effects on the evolution of sustainable investment practices in public equities markets. In a similar way, some SWFs – such as Temasek and GIC – have become influential in private markets, as they participate in direct investment consortia to drive capital to discrete market sectors, such as those related to disruptive technologies.

Much of the current attention on and scrutiny of global equity markets centres on the increasing growth of index funds. These are low-cost passive investment funds that are indexed to a variety of markets and sponsored by three of the largest global investment managers: BlackRock, Vanguard and State Street. Since the turn of the century these three managers have collectively quadrupled their ownership of the US S&P 500 index, with an average aggregate stake of 20 per cent of the holdings of the benchmark (Bebchuk & Hirst 2019). Hence, Blackrock, Vanguard and State Street can wield considerable influence on behalf of their clients by voting on board proposals. Research analysing the proxy voting of these managers demonstrates that they exercise their shareholder rights in a consistent, if not controversial, way by voting most of the time with management. The concentration of shareholder rights in this handful of organizations suggests that they have become systemically important to the functioning of global public equity markets (Fichtner, Heemskerk & Garcia-Bernardo 2017). In this regard, the somewhat smaller holdings of public equities even by the largest SWFs significantly constrain their ability to exert considerable influence over the managements of their investee companies.

Total SWF holdings in listed equities amounted to roughly $3.4 trillion at the end of 2020.4 This represents just 3.6 per cent of total global market capitalization.5 This level of ownership is insufficient to claim that SWFs in the aggregate are systemically important, especially when compared to the largest institutional investment managers.

Nevertheless, individual SWFs can be influential asset owners. The GPFG, managed by Norges Bank Investment Management (NBIM), owns 1.5 per cent of all listed equities globally and more than 2.5 per cent in Europe (some 9,123 companies in total). The GPFG is by law not allowed to own more than 10 per cent of the shares of any single firm, but this does not deter NBIM, on behalf of the GPFG, from exercising ownership rights to influence corporate behaviour. For example, the GPFG has been active in encouraging proxy access rights for US-listed companies, which allow it to nominate candidates to boards of director. The GPFG has also set a precedent by publishing its voting intentions prior to general meetings to raise awareness of its position vis-à-vis other shareholders. Given the visibility of the fund as one of the world’s largest and most transparent, attributable in part to Norway’s liberal-democratic governance, the decisions taken by the fund are scrutinized, challenged and imitated (Vasudeva, Nachum & Say 2018).

The overall objective of the GPFG is to realize long-term value creation while investing sustainably, integrating economic, environmental and social considerations. As such, the GPFG, under the stewardship of the NBIM, has established standards in the way large asset owners approach responsible investing, through the introduction of ethical guidelines (see below for discussion), low-carbon transition strategies, corporate governance guidelines and active corporate engagement strategies to hold responsible top managers and board members of its investee companies. Although the GPFG does not hold seats on portfolio company boards, its engagement strategy has nonetheless been influential in pressuring investee company boards (Aguilera et al. 2021).

On the matter of climate specifically, Norway, as an oil producer, has been criticized for not setting emission targets for the GPFG. Notwithstanding this criticism, in 2019 Norway’s parliament approved a divestment strategy for fossil fuel holdings (including coal, oil and gas) and also committed to redirect a portion of the GPFG’s holdings to unlisted renewable energy infrastructure (NBIM 2021). NBIM became a founding member of the One Planet Sovereign Wealth Funds (OPSWF) initiative, joining ADIA, the KIA, the NZSF, the QIA and the PIF. This initiative, established in 2017, is focused on promoting the integration of climate risk criteria into SWF portfolio strategies and encouraging investments that support transition to a “low” emissions economy. Although the OPSWF’s members themselves may not exert strong and independent influence over the pricing of carbon risk, the OPSWF through its leadership elevates climate change as a critical risk factor in managing institutional capital. We elaborate further on this in the next section.

From here.