Signage with logo at the Silicon Valley headquarters of semiconductor company Applied Materials, … [+] Santa Clara, California, August 17, 2017. (Photo via Smith Collection/Gado/Getty Images).
Our theme on Stocks That Benefit From The Semiconductor Shortage includes companies that produce machinery and tools for chipmaking and semiconductor players with their own fab capacity. The stocks in the theme have had a relatively mixed couple of days, driven by news from TSMC, the largest semiconductor contract manufacturer, which indicated that the automotive chip shortage was likely to ease this quarter as it plans to increase the output of semiconductors that go into vehicles by almost 60% versus last year and by roughly 30% from pre-pandemic levels. However, there are several trends that point to structurally higher semiconductor demand, which should, in turn, drive investments in chip fabrication equipment. Higher digitization following Covid-19, the 5G upgrade cycle in the wireless market, and the need for more advanced chips for applications such as AI and machine learning, and cloud computing are big levers of semiconductor demand growth. Separately, the demand for increasing re-shoring of semiconductor production to the U.S. from overseas could also drive sales.
Our theme has outperformed this year, returning 21% year-to-date, compared to a return of 14% for the Nasdaq-100. Within our theme, Applied Materials has been the strongest performer, with its stock rising by about 49% year-to-date. On the other side, memory major Micron Technology has been the worst performer, with its stock remaining roughly flat year-to-date.
[7/7/2021] Semiconductor Shortage Stocks
The global chip supply crunch has disrupted production in a wide range of industries. Although much of the news about the shortage has been centered on the automotive industry, industries ranging from medical devices to home appliances and consumer electronics continue to see the impact. There doesn’t appear to be a quick solution to the current shortage, and considerable investments into the global semiconductor supply chain will be required in the coming years. Investors can gain exposure to this trend via our indicative theme on Stocks That Benefit From The Semiconductor Shortage – which includes companies that produce machinery and tools for chipmaking and semiconductor players with their own fab capacity. The theme has outperformed this year, returning 27% year-to-date, compared to a return of 16% for the Nasdaq-100. Within our theme, Applied Materials has been the strongest performer, with its stock rising by about 58% year-to-date as investors expect the company, which supplies wafer fab equipment, to be a key beneficiary of rising capital spending by chipmakers. On the other side, memory major Micron Technology has been the worst performer, with its stock price up by just about 7% this year.
[6/21/2021] Stocks That Benefit As U.S. Re-Shores Semiconductor Production
The global chip shortage, which was brought about by surging demand from the consumer electronics industry and supply-side disruptions, has impacted the production of a range of products ranging from cars to computers over the last few quarters. Investors can stand to benefit from the trend, with our indicative theme on Stocks That Benefit From The Semiconductor Shortage – which includes companies that produce machinery and tools for chipmaking and semiconductor players with their own fab capacity. The theme has outperformed this year, returning 23% year-to-date, compared to a return of 11% for the S&P 500.
Now, although the worst of the semiconductor crunch appears to be over for the automotive industry – which bore the brunt of the disruption, we think the theme will continue to outperform in the medium to long term as semiconductor demand is expected to run ahead of supply. Moreover, demand for semiconductor fabrication equipment is also likely to grow, as the U.S. government has been taking steps to protect its chip supply by incentivizing domestic production following the current supply crunch, as well as events such as Covid-19, and the trade war with China. For perspective, the U.S. share of semiconductors production has declined to just 12% down from about 37% share back in 1990 and lawmakers are looking to reverse this trend. Last week, lawmakers introduced a bipartisan bill looking at a 25% tax credit for investments into semiconductor manufacturing equipment and facilities to encourage semiconductor companies to invest in U.S. production. This comes less than a week after the Senate approved about $52 billion in funding for the semiconductor industry, to help the U.S. better take on China.
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Within our theme, Applied Materials -a supplier of equipment, services, and software used in the production of semiconductor and display products – has been the strongest performer, with its stock price up by 52% year to date. On the other side, memory major Micron Technology has been the weakest performer, with its stock up by just about 2%.
[6/7/2021] Chip Shortage Stocks
Our theme on Stocks That Benefit From The Semiconductor Shortage – which includes chip companies with their own fabrication capacity and companies that produce machinery and tools for chipmaking – has outperformed this year, returning 30% year-to-date, compared to a return of 13% for the S&P 500. Now although there are some signs that the shortage is easing a bit for the auto sector, with carmakers restarting some production lines they had previously idled, it’s safe to assume that demand for chips will continue to outstrip supply across the board, in the medium term. For example, the CEO of Intel, Pat Gelsinger, expects the shortage to last another two years. There are some other trends that could help the stocks in our theme. Western countries are looking to become more self-reliant with respect to semiconductor production, which is presently dominated by China and other countries in Asia, and this could boost demand for chip fabrication equipment. President Joe Biden’s infrastructure plan also includes $50 billion worth of subsidies for the semiconductor industry and this could also help bolster demand for fabrication equipment.
Within our theme, Applied Materials -a supplier of equipment, services, and software used in the production of semiconductor and display products – has been the strongest performer, with its stock price up by 62% year to date. On the other side, memory major Micron Technology has been the weakest performer, with its stock up by just about 11%.
Our theme on Stocks That Benefit From The Semiconductor Shortage has returned 28% year-to-date, compared to a return of 13% for the S&P 500. The current chip shortage has gotten more severe over the last few weeks, spreading from the automotive industry which typically relies on legacy, lower margin chips, to more advanced chips used in areas such as consumer electronics. For instance, Apple recently hinted that sales of some of its iPads and Macs could be impacted in the coming quarters by the shortage of chips, while Samsung says that the supply crunch is impacting its television and appliance production.
Within our theme, companies that provide tools and machinery for chipmaking have performed the best this year. Investors expect that the current chip shortage and increasing push by the U.S. and the European Union to become more self-reliant with semiconductor production (which is currently dominated by China) is likely to boost demand for chip fabrication equipment. For instance, Applied Materials, Brooks Automation, and LAM Research have seen year-to-date returns of 53%, 35%, and 30% respectively. Semiconductor companies with their own fabrication capacity – which are also part of our theme – have also fared reasonably well with Micron Technology stock up 20%, Intel up 18%, and Skyworks Solutions up 15%. These companies should stand to benefit, to an extent, from the strong demand and price dynamics in the current market, while being somewhat insulated from the supply side constraints.
[4/29/2021] Stocks That Benefit From The Semiconductor Crunch
The semiconductor industry has been facing a severe supply crunch, driven by surging demand from the consumer electronics industry through Covid-19 and supply-side disruptions including a fire at a fabrication unit in Japan, the freezing weather in the southern United States, and drought in Taiwan. The auto industry is bearing the brunt of the shortfall, with OEMs including Toyota, Volkswagen, and GM having to scale back on production due to a lack of chips, and consumer electronics majors such as Apple are also beginning to feel the pinch. That said, there are a set of companies that stand to benefit from the current shortfall in chip production. For example, semiconductor players who have their own fab capacity stand to gain, as they could see higher price realization without seeing their costs escalate. Moreover, companies that produce tools and machinery for chipmaking should also benefit, as chipmakers expand budgets in order to add more production capacity. For example, Taiwan’s TSMC said it will spend about $100 billion over the next three years to boost capacity, while Samsung Electronics plans to invest $116 billion into boosting production by 2030. Our theme on Stocks That Benefit From The Semiconductor Shortage has returned 32% year-to-date, compared to a return of 12% for the S&P 500. Below is a bit more about some of the stocks in our theme and how they have been performing this year.
Applied Materials supplies equipment, services, and software used in the production of semiconductor and display products. The stock has been the strongest performer within our theme, rising about 56% year-to-date, driven by strong demand for semiconductor equipment, and increasing production complexity in the industry.
Brooks Automation provides automation, vacuum, and instrumentation equipment for markets including the semiconductor and life sciences industry. The stock is up by about 46% year-to-date as the company is seeing higher demand for its products from the semiconductor space driven by the trends such as the Internet of Things, 5G wireless technology, and machine learning.
KLA Tencor is another supplier to the semiconductor production space, focused on process control and yield management solutions. The stock is up by about 25% year-to-date, driven by the current chip shortage, and calls from the U.S. government to strengthen the American semiconductor manufacturing industry.
Intel, one of the largest microprocessor makers, is also likely to benefit from the current supply crunch as it operates its own fabs, unlike rivals such as AMD and Qualcomm who are dependent on third parties. The company also recently indicated that it was in talks with companies that design chips for carmakers to produce their chips at Intel foundries. The stock is up 18% this year.
Want upside from growing digitization post-Covid-19 but don’t want to pay a big premium for tech stocks? Check out our theme on Value Tech Stocks