Moore's Law is not a law of physics but rather a famous observation and projection made by Gordon Moore, the co-founder of Intel. In a 1965 paper, he predicted that the number of transistors that could be squeezed onto an Integrated Circuit (or microchip) would double approximately every year. He later revised this forecast to a doubling every two years. This simple-sounding observation became the golden rule of the electronics industry for more than half a century. Its profound implication is that computing power grows exponentially while its relative cost plummets. This relentless, predictable progress has been the engine behind the digital revolution, making powerful technologies like personal computers, the internet, and smartphones accessible and affordable to the masses. For investors, Moore's Law represents one of the most powerful, long-term disruptive forces in the modern economy, creating incredible opportunities while simultaneously threatening to make established business models obsolete overnight.
For a Value Investing practitioner, understanding Moore's Law is crucial because it fundamentally shapes the competitive landscape of the entire technology sector and beyond. It's a double-edged sword: it fuels innovation and growth but also enforces a brutal pace of change that can erode a company's Competitive Advantage, or Moat, in the blink of an eye.
Think of Moore's Law as a high-speed treadmill that companies in the Semiconductor industry are forced to run on. They must pour billions into research and development and Capital Expenditures (CapEx) just to keep up with the expected pace of improvement. Standing still means falling behind and becoming irrelevant. This makes it incredibly difficult for many hardware companies to establish a durable moat. A chip that is state-of-the-art today might be a commodity in two years. This dynamic creates immense risk, but also opportunity. The law is the foundational force that enabled the rise of software and internet giants. Companies like Microsoft, Google, and Meta Platforms built their empires on the assumption of ever-cheaper and more powerful hardware. Their moats are often built on network effects or intangible assets, which can be more durable than a temporary hardware advantage.
During the gold rushes, a clever way to get rich wasn't to pan for gold, but to sell the picks, shovels, and blue jeans to the thousands of hopeful miners. A similar strategy can be applied to the tech industry driven by Moore's Law. Instead of trying to pick the winning consumer gadget company, an investor can focus on the indispensable companies that supply the entire industry. These “picks and shovels” players often have much stronger moats.
For years, pundits have been predicting the “death of Moore's Law.” Transistors are now so small—just a few nanometers wide—that they are approaching the limits of physics, where quantum effects interfere with their operation. Furthermore, the cost of building a new cutting-edge chip factory has ballooned to over $20 billion. While the original formulation of Moore's Law is certainly slowing, innovation hasn't stopped. The industry is shifting from “More Moore” (shrinking transistors) to “More than Moore” (clever new ways to improve performance). This includes:
This shift creates a new landscape for investors, where opportunities lie in identifying the companies leading these new architectural and design paradigms.
When analyzing a company in a tech-related field, use Moore's Law (and its potential slowdown) as a lens to assess risk and durability. Ask yourself: