From the start of the Covid-19 pandemic, employers around the globe sent their employees home to maintain safety and productivity during the lockdown. As more people began to work from home, the need for work-from-home electronics grew. So, then, did the demand for semiconductors.

Semiconductors are integral devices in PCs, cars, cameras, smartphones, gaming hardware, medical equipment… anything technological. With all that demand, the chip supply has run short — and this is showing in the market.

Despite the demand, semiconductors were caught up in the broader market selloff this year. The SPDR S&P Semiconductor ETF (NYSEARCA:XSD), which tracks an index of chip stocks, is down nearly 38% year-to-date (YTD). It is also underperforming the S&P 500, which is down more than 20% during the same time frame.

So, given the disappointing performance from semiconductors this year, all eyes were on Micron Technology (NASDAQ:MU) on Thursday afternoon. That’s when the Boise, Idaho-based company, which builds and sells memory chips for PCs and smartphones, reported its earnings results for its third quarter in fiscal year 2022.

Unfortunately, they continued to disappoint.

For the third quarter, Micron reported earnings of $2.59 per share on revenue of $8.6 billion. Analysts were calling for earnings of $2.43 per share, so the company topped earnings estimates by 6.6%. Revenue was in line with expectations.

Despite reporting an earnings surprise, MU fell more than 5% on Friday, though it did regain some momentum in afternoon trading. The fact of the matter is that Micron’s fourth-quarter guidance fell short of analysts’ expectations. Looking forward, the company projects revenue between $6.8 billion and $7.6 billion and earnings per share between $1.43 and $1.83. Analysts had anticipated revenue of $9.05 billion and earnings of $2.62 per share.

I should also add that Micron CEO Sanjau Mehrotra’s comments during the earnings conference call weren’t helpful. During the call, Mehrotra said he anticipates smartphone unit volume to slip about 5% year-over-year. Analysts had estimated smartphone unit volume to grow about 5%. The CEO also noted that PC sales could fall 10% year-over-year, so Micron was adjusting its production growth to meet the slowing demand.

Mehrotra also commented that computer and smartphone owners were “adjusting their inventories” for the next six months. “If you were to translate it into units, it amounts to like 130 million units reduction versus expectation earlier in the year for smartphone,” he said. “Similarly, for PC, let’s say 30 million kind of reduction in terms of total units versus the projections earlier in the year.”

This is another indication that demand for computer and smartphones is weakening and could weigh on chipmaker revenues, which does not bode well for the semiconductor sector.

So, where should you invest your money instead?

Companies with scalability.

Scalability is the capacity of a business to massively grow revenues while minimally growing the costs associated with producing those revenues.

This kind of company can grow 10, 100, or even 1,000 times larger in the span of just a few years. That makes scalability the Holy Grail of business models.

Scalability is the key quality of incredible wealth generators like Meta Platforms (NASDAQ:META), Amazon (NASDAQ:AMZN) and Alphabet Inc. (NASDAQ:GOOG, NASDAQ:GOOGL). When it comes to building great wealth in short time spans, nothing comes close to scalable businesses.

(Chip developers like Micron, by nature, are manufacturers, even if they contract fabrication out to Taiwan. Manufacturing, with its high real estate, employment, and equipment demands, is decidedly not scalable.)

I’m pleased to say that my friend the Wall Street legend Whitney Tilson — dubbed by CNBC as “The Prophet” for correctly predicting many market moves — agrees (he likes to call these companies “hyperscalable”).

Our investing approaches may be different, but the point remains the same: When it comes to building great wealth in short time spans, nothing comes close to scalable businesses.

It’s why Whitney and I are getting ready now for an upcoming special event where we’ll discuss scalability (or hyperscalability)… and how you can use it to your profitable advantage today. I’ll have more details on this event soon, so keep an eye on your inbox for updates.

P.S. The stock market will be closed on Monday, July 4, in celebration of the Fourth of July holiday. The InvestorPlace offices and customer service department will also be closed next Monday. I hope you have a happy and safe holiday!

The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:

Amazon (AMZN), Alphabet (GOOG), Micron Technology, Inc. (MU), Meta Platforms, Inc. (META)