Bet on the Chip Leaders… Intel (INTC)

There is a maxim which states companies that spend more on development and advertising during economic downturns, rise become leaders when then markets turn around. And it’s true.

Much of the reason behind this is that prices plummet during downturns: business investment – of any kind – can be done incredibly cheap compared to “normal” periods. Being a buyer when everyone else is selling has a simple benefit – you get great deals.

Intel Corporation (Nasdaq: INTC) has been one of the most public in its business investments. Today it’s detailing how it will spend $7 billion over the next two years on new chip manufacturing and development in the United States.

When you consider that a semiconductor chip manufacturing plant can cost in the neighborhood of $1 billion and take years before they show profits, these investments are not taken lightly. 

But Intel isn’t alone. Cisco Systems (Nasdaq: CSCO) has been on an acquisition spree, picking up seven companies over the past year. Fueled in part by is $30 billion cash war chest, Cisco has been refinancing its debt.

Like Microsoft (Nasdaq: MSFT), these large cash reserves benefit Cisco and Intel by giving them flexibility in financing, and the ability to acquire competitors with new technologies.

These “chip leaders” in the poker game of the stock market should be able to press their advantage. And ultimately, benefit their investors.

Companies mentioned in this article: INTC, CSCO and MSFT.