At the Silicon Valley headquarters of semiconductor giant Applied Materials, there is a sign with the company’s emblem,… [+] The 17th of August, 2017 in Santa Clara, California. (Image courtesy of Smith Collection/Gado/Getty Images.)
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The global chip shortage has caused production to be disrupted in a variety of businesses. Despite the fact that much of the attention has been focused on the automotive industry, the scarcity is having an impact on businesses ranging from medical devices to home appliances and consumer electronics. The current shortfall does not appear to have a rapid fix, and significant investments in the global semiconductor supply chain will be necessary in the coming years. Our suggestive topic on Stocks That Benefit From The Semiconductor Shortage includes companies that produce chipmaking machines and tools, as well as semiconductor players with their own fab capacity, so investors can obtain exposure to this trend. This year, the theme has outperformed the Nasdaq-100, returning 27% year to date versus 16% for the Nasdaq-100. Within our topic, Applied Materials has been the best performer, with its shares up over 58 percent year to date as investors expect the business, which provides wafer fab equipment, to benefit from growing chipmaker capital spending. Micron Technology, on the other hand, has been the weakest performer this year, with a stock price increase of only roughly 7%. [6/21/2021] Stocks to Watch As Semiconductor Production Returns to the United States
Over the last few quarters, a global chip shortage caused by increased demand from the consumer electronics industry and supply-side interruptions has hampered the production of a variety of items ranging from cars to computers. With our suggestive theme on Stocks That Benefit From The Semiconductor Shortage – which includes firms that provide chipmaking machines and tools, as well as semiconductor players with their own fab capacity – investors can stand to benefit from the trend. The theme has outperformed this year, with a year-to-date return of 23 percent vs 11 percent for the S&P 500.
Although the worst of the semiconductor shortage looks to have passed for the automotive industry, which was hit the worst, we believe the theme will continue to thrive in the medium to long term, as semiconductor demand is projected to outpace supply. Furthermore, demand for semiconductor fabrication equipment is expected to rise as the US government takes steps to secure its chip supply by incentivizing local manufacture in the wake of the present supply shortage, as well as events like Covid-19 and the trade war with China. To put things in perspective, the United States’ share of semiconductor production has dropped to barely 12% from around 37% in 1990, and policymakers are working to reverse this trend. Last week, senators offered a bipartisan bill that would provide a 25% tax credit for expenditures in semiconductor manufacturing equipment and facilities, in order to incentivize semiconductor companies to invest in American manufacturing. This comes less than a week after the Senate approved $52 billion in semiconductor funding to help the US better compete with China.
Applied Materials, a producer of equipment, services, and software utilized in the creation of semiconductor and display goods, has been the best performer in our theme, with a 52 percent year-to-date stock price increase. Micron Technology, on the other hand, has been the worst performer, with its stock only rising by roughly 2%.
[6/7/2021] Stocks with a Chip Shortage
Our current topic is “Stocks That Benefit From” The Semiconductor Shortage, which includes semiconductor businesses with their own fabrication capacity as well as companies that provide chipmaking machines and tools, has outperformed this year, returning 30% year to date vs 13% for the S&P 500. Although there are some signs that the chip scarcity is lessening in the auto sector, with automakers resuming some previously idled production lines, it’s safe to expect that demand for chips will continue to surpass supply in the medium term. Intel’s CEO, Pat Gelsinger, for example, estimates that the scarcity will endure another two years. There are a few more trends that could boost our theme’s stocks. Western countries are attempting to become more self-sufficient in semiconductor manufacture, which is now dominated by China and other Asian countries, which could increase demand for chip fabrication equipment. The semiconductor industry will receive $50 billion in subsidies as part of President Joe Biden’s infrastructure proposal, which might help boost demand for fabrication equipment.
ADDITIONAL INFORMATION FOR YOU
Applied Materials, a provider of equipment, services, and software used in the manufacturing of semiconductor and display goods, has been the best performer in our topic, with a stock price that has increased by 62 percent year to date. Micron Technology, on the other hand, has had the worst performer, with its stock up only roughly 11 percent.
[5/12/2021]
Year to date, our theme of Stocks Benefiting From The Semiconductor Shortage has returned 28 percent, compared to 13 percent for the S&P 500. Over the last few weeks, the chip shortage has worsened, moving from the automotive industry, which depends on legacy, lower-margin processors, to more modern chips used in industries such as consumer electronics. For example, Apple recently stated that the scarcity of chips may affect sales of some of its iPads and Macs in the next quarters, while Samsung claims that the shortage is affecting its television and appliance output.
Companies that provide tools and machinery for chipmaking have performed the best this year within our theme. The current chip shortfall, as well as the United States’ and European Union’s expanding efforts to become more self-reliant in semiconductor production (which is now dominated by China), are expected to raise demand for chip fabrication equipment, according to investors. Year-to-date returns for Applied Materials, Brooks Automation, and LAM Research, for example, have been 53 percent, 35 percent, and 30 percent, respectively. Micron Technology stock is up 20%, Intel is up 18%, and Skyworks Solutions is up 15%. Semiconductor businesses with their own fabrication capacity, which are also part of our theme, have also done well. These businesses should gain to some extent from the current market’s strong demand and pricing dynamics, while remaining somewhat shielded from supply-side limitations.
[4/29/2021] Stocks Benefiting From The Semiconductor Shortage
The semiconductor industry has been experiencing a severe supply shortage, owing to increased demand from the consumer electronics industry via Covid-19, as well as supply-side issues such as a fire at a fabrication facility in Japan, freezing weather in the southern United States, and drought in Taiwan. The auto industry is feeling the brunt of the shortage, with OEMs like Toyota, Volkswagen, and GM having to reduce production owing to a shortage of chips, and consumer electronics giants like Apple are starting to feel the pinch as well. However, a number of businesses stand to benefit from the current shortage in chip manufacture. Semiconductor companies with their own fab capacity, for example, may benefit from better price realization without increasing their costs. Additionally, companies that develop chipmaking tools and gear could benefit as chipmakers increase their budgets to increase production capacity. For example, Taiwan’s TSMC has stated that it will invest roughly $100 billion in capacity expansion over the next three years, while Samsung Electronics has stated that it will invest $116 billion in capacity expansion by 2030. Year to date, our theme of Stocks Benefiting From The Semiconductor Shortage has returned 32 percent, compared to 12 percent for the S&P 500. Here’s some more information on some of the stocks in our topic, as well as how they’ve performed this year.
Applied Materials provides semiconductor and display manufacturers with equipment, services, and software. The stock has been the best performer in our topic, up roughly 56 percent year to date, owing to high demand for semiconductor equipment and the industry’s increasing production complexity.
Brooks Automation manufactures automation, vacuum, and instrumentation equipment for a wide range of industries, including semiconductors and life sciences. The stock has risen about 46% year to date as the business sees increased demand for its semiconductor products driven by developments like the Internet of Things, 5G wireless technology, and machine intelligence.
KLA Tencor is a semiconductor manufacturing supplier that specializes in process control and yield management solutions. The current chip shortfall, as well as calls from the US government to support the American semiconductor manufacturing industry, have pushed the stock up almost 25% year to date.
Intel, one of the top microprocessor manufacturers, is likely to benefit from the present supply shortage since it has its own fabs, unlike rivals AMD and Qualcomm, which rely on third parties. Intel has also lately stated that it is in talks with chip designers for automakers to create their chips at Intel foundries. This year, the stock has increased by 18%.
Want to profit from further digitization after Covid-19 but don’t want to pay a high premium for tech stocks? Take a look at our Value Tech Stocks section.
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