This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.

After the U.S. CHIPS Act was made official last year, the Commerce Department has released its first funding round details for the investments that the government will make in the semiconductor industry to develop "large scale clusters" of leading edge chip fabrication and research facilities in the U.S. Today's announcement covers the first funding round of the program, which deals with requiring companies to submit their applications for up to 15% of support related to setting up new facilities in the U.S. to make leading edge chips or memory products.

They also issue rules that the firms applying for the grants will be required to follow, including a limitation for setting up new manufacturing facilities in high risk countries and submitting plans for future stock buyback to the Commerce Department as part of the application process.

U.S. CHIPS Act Will Evaluate Applicants On Several Criteria, Including Investments In Countries of Concern and Stock Buybacks

The U.S. CHIPS Act was passed in Congress last year, and today the Commerce Department opened up its first round of applications for the funding. This round asks interested parties to submit letters of interest to the government, through which their applications can be evaluated for the support. The applications will compete for up to $38 billion in direct funding and a whopping $75 billion for government loan guarantees and other backing.

As part of the application process, companies such as Intel, which have been quite vocal about the incentives, will also be required to make their own contributions and show how much private funding they have secured for the planned projects for which they are applying for the CHIPS funding. They will also be required to submit financial projections, including total capital expenditure, cash oufllws until the project breaks even and workforce spending.

Part of the details required by the funding application under the CHIPS Act. Image: CHIPS Incentives Program – Commercial Fabrication Facilities Notice of Funding Opportunity/ Department of Commerce

Additonally, Commerce will also require firms to submit details of any potential share ubybacks and dividend payment that they are planning for the future, and stop them from making any dividend payments or buybacks from the funds granted through the CHIPS Act. As part of a fact sheet titled Protecting U.S. Taxpayers, the Deparment outlines that:

Buyback Commitment: In light of the Department’s commitment to prioritizing applicants that invest in the United States, the applicant should detail their intentions with respect to stock buybacks over five years, including whether they intend to refrain from or limit them, as well as details around the existence of any current or future intentions for share buybacks, dividend payments, dividend payment increases, or special dividends.

The applications will be evaluated "based on the extent of the applicant’s commitments to refrain from stock buybacks,"and according to the details shared today, companies will also be required to share excess cash flows from any investment made through the CHIPS Act with the government.

As Commerce highlights:

The CHIPS Program Office will require recipients of more than $150 million in direct funding to share with the U.S. government a portion of any cash flows or returns that exceed the applicant’s projections above an established threshold. This requirement will be waived only in exceptional circumstances. The terms of upside sharing will be set on a case-by-case basis and will incentivize companies to ensure that their financial projections are as accurate as possible. Any upside sharing proceeds will go to support the purposes of the CHIPS Act and strengthen the U.S. semiconductor ecosystem.

Finally, should a firm receive funding from the government under the CHIPS Act, it will be forbidden from investing for the next decade in any country of concern, such as China. This is part of the government's efforts to limit access to semiconductor technology to nations that are deemed as hostile against U.S. national security, with the notice of funding opportunity explicitly pointing out:

Under the CHIPS Act, a successful applicant must enter into an agreement specifying that during the 10-year period beginning on the date of the award, it may not engage in any significant transaction involving the material expansion of semiconductor manufacturing capacity any foreign country of concern, except under certain limited conditions.63 Additional information on the implementation of this provision will be provided to applicants prior to award.