These tech stocks face a day of reckoning and they're likely in your portfolio

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Fabless semiconductor companies may be hit hard if they can’t adapt to a major industry shift that’s now underway

A seismic shift is happening in the semiconductor industry right now. This transformation is not merely a technological evolution; it’s a financial game-changer that will significantly impact the portfolios of many investors.

Fabless companies are less needed Fabless semiconductor companies such as Broadcom AVGO, +1.14%, Qualcomm QCOM, +1.76% and Advanced Micro Devices AMD, +4.19% have four key attributes that combine to form their value proposition: intellectual property; software/integration; talent/know-how, and distribution. Yet as big tech companies grow in both scale and technological capability, the relative value of fabless companies diminishes in value.

Build or buy? Despite the huge incentive the tech giants have to switch to in-house silicon, it is not always a straightforward decision. Companies must consider scale, as the volume of chips needed must justify the cost and effort of in-house design. Capability is another crucial factor. Only the largest companies like Apple and Tesla have the talent, intellectual property, and capital to design their own chips.

Currently, only TSMC, Intel, and Samsung have the capabilities to manufacture the world’s most advanced chips. These companies are also making significant investments in additional foundries in the U.S. and Europe, and they are attempting to diversify geographically away from dependence on Taiwan.

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