As the auto chip shortage diminishes, are semiconductor equipment stocks still a buy?
Our subject on Stocks that benefit from the semiconductor shortage includes companies that manufacture machines and tools for chip manufacturing and semiconductor companies with their own manufacturing capacity. Stocks on the theme had been relatively mixed for a few days, driven by news from TSMC, the largest semiconductor contractor, which suggested that automotive chip scarcity is likely to decrease this quarter as semiconductor production is slated to increase increase in vehicles by nearly 60% year over year and by about 30% over pre-pandemic levels. However, there are several trends that indicate structurally higher demand for semiconductors, which in turn should drive investments in chip manufacturing equipment. The increased digitization after Covid-19, the 5G upgrade cycle in the cellular market and the need for more advanced chips for applications such as AI and machine learning as well as cloud computing are big levers for the growth in semiconductor demand. Regardless of this, the demand for an increasing relocation of semiconductor production from overseas to the USA could also increase sales.
Our theme has outperformed this year, scoring 21% year-to-date, compared to 14% for the Nasdaq-100. Within our theme, Applied Materials was the strongest performer, with shares up about 49% since the start of the year. On the flip side, memory major Micron Technology was the worst performer, with shares roughly unchanged since the start of the year.
[7/7/2021] Semiconductor scarcity stocks
The global chip supply crisis has disrupted production in a large number of industries. Although much of the news about the scarcity has focused on the automotive industry, industries from medical devices to home appliances and consumer electronics continue to see the impact. There does not seem to be a quick fix to the current scarcity and significant investments in the global semiconductor supply chain will be required in the years to come. Investors can check out our indicative topic. contribute to this trend Stocks that benefit from the semiconductor shortage – which include companies that manufacture machines and tools for chip manufacturing and semiconductor companies with their own manufacturing capacity. The theme has outperformed this year, hitting 27% year-to-date, compared to a 16% return for the Nasdaq-100. Within our theme, the top performer was Applied Materials, whose stock is up about 58% year-to-date as investors expect the wafer factory equipment company to benefit from increasing capital spending by chipmakers. On the flip side, memory major Micron Technology was the worst performer, whose share price is only about 7% higher this year.
[6/21/2021] Stocks that benefit from US semiconductor production
Global chip scarcity, caused by soaring consumer electronics industry demand and supply-side disruptions, has impacted the production of a number of products ranging from automobiles to computers in recent quarters. Investors can benefit from this trend as our indicative theme is on Stocks that benefit from the semiconductor shortage – which include companies that manufacture machines and tools for chip manufacturing and semiconductor companies with their own manufacturing capacity. The theme has outperformed this year, delivering 23% return since the start of the year, compared to a return of 11% for the S&P 500.
While the worst of the automotive semiconductor crisis – which bore the brunt of the disruption – seems to be over, we believe the issue will continue to outperform in the medium to long term as semiconductor demand is expected to outpace supply. In addition, demand for semiconductor manufacturing equipment is also likely to rise as the U.S. government has taken steps to protect its chip supply by incentivizing domestic manufacturing following the current supply crisis and events like Covid-19 and the trade war with China. Looking ahead, the US share of semiconductor production has fallen to just 12% from around 37% in 1990, and lawmakers are trying to reverse this trend. Last week, lawmakers tabled bipartisan bill providing a 25% tax credit on investments in semiconductor manufacturing equipment and facilities to encourage semiconductor companies to invest in US manufacturing. This comes less than a week after the Senate approved about $ 52 billion in semiconductor industry funding to help the US better fight China.
Within our theme, Applied Materials – a provider of equipment, services and software for the manufacture of semiconductor and display products – was the strongest performer with a price increase of 52% over the year to date. On the flip side, memory major Micron Technology was the weakest performer, with its stock rising just under 2%.
[6/7/2021] Chip shortage stocks
Our subject on Stocks that benefit from the semiconductor shortage – which includes chip companies with their own manufacturing capacity and companies that manufacture machines and tools for chip manufacturing – has outperformed this year and achieved a return of 30% over the year to date, compared to a return of 13% for the S&P 500 Some Signs that the scarcity for the automotive industry is easing somewhat as automakers are resuming some previously shut down production lines, it can be assumed that demand for chips will continue to outstrip supply across the board in the medium term. Intel CEO Pat Gelsinger, for example, expects the shortage to last for another two years. There are a few other trends that could help the stocks in our theme. Western countries are looking to become more independent of semiconductor production, which is currently dominated by China and other Asian countries, which could boost demand for equipment for chip manufacturing. President Joe Biden’s infrastructure plan also includes $ 50 billion in subsidies for the semiconductor industry, which could also help fuel demand for manufacturing equipment.
Within our theme, Applied Materials – a provider of equipment, services and software for the manufacture of semiconductor and display products – was the strongest performer with a price increase of 62% over the year to date. On the flip side, storage major Micron Technology was the weakest performer with its inventory only increasing by about 11%.
Our subject on Stocks that benefit from the semiconductor shortage has returned 28% year-to-date compared to a 13% return for the S&P 500. The current chip scarcity has worsened in recent weeks, spreading from the automotive industry, which typically relies on older, lower-margin chips to more advanced chips used in areas such as consumer electronics. For example, Apple recently indicated that sales of some of its iPads and Macs could be impacted by the lack of chips in the coming quarters, while Samsung says the supply crisis is affecting TV and device production.
Within our topic, companies that provide tools and machines for chip manufacturing have achieved the best results this year. Investors believe that the current chip scarcity and increasing pressure from the US and the European Union to become more independent of semiconductor manufacturing (currently dominated by China) should drive demand for chip manufacturing equipment. For example, Applied Materials, Brooks Automation, and LAM Research have year-to-date returns of 53%, 35% and 30%, respectively. Semiconductor companies with their own manufacturing capacity – which are also part of our theme – have also done quite well, up 20% at Micron Technology, 18% at Intel and 15% at Skyworks Solutions. These companies are likely to benefit to some extent from the strong demand and price dynamics in the current market, while being somewhat isolated from supply-side constraints.
[4/29/2021] Stocks that benefit from the semiconductor crisis
The semiconductor industry has faced a severe supply crisis caused by rising consumer electronics industry demand from Covid-19 and supply-side disruptions such as a factory fire in Japan, icy weather in the southern United States, and drought in Taiwan. The auto industry is bearing the brunt of the deficit, with OEMs like Toyota, Volkswagen and GM having to scale back production due to a lack of chips, and consumer electronics majors like Apple are beginning to feel the dilemma as well. However, there are a number of companies that will benefit from the current chip production deficit. For example, semiconductor companies that have their own manufacturing capacity can benefit as they can get higher prices without escalating their costs. Additionally, companies that make tools and machinery for chip manufacturing should also benefit as chipmakers expand their budgets to add more manufacturing capacity. For example, Taiwan’s TSMC said it will spend about $ 100 billion over the next three years to increase capacity, while Samsung Electronics plans to invest $ 116 billion in increasing production by 2030 Stocks that benefit from the semiconductor shortage has returned 32% year-to-date compared to a 12% return for the S&P 500. Below is a little more about some of the stocks in our topic and how they performed this year.
Applied Materials supplies equipment, services and software for the manufacture of semiconductor and display products. The stock was the top performer on our theme, up about 56% year-to-date, driven by strong demand for semiconductor equipment and the increasing complexity of manufacturing in the industry.
Brooks Automation provides automation, vacuum, and instrumentation equipment for markets such as the semiconductor and life science industries. The stock is up about 46% since the start of the year as the company sees higher demand for its semiconductor-based products, driven by trends like the Internet of Things, 5G wireless technology, and machine learning.
KLA Tencor is another semiconductor manufacturing supplier that focuses on process control and yield management solutions. The stock is up about 25% since the start of the year, driven by the current chip shortage and calls by the US government to strengthen the American semiconductor manufacturing industry.
Intel, one of the largest microprocessor manufacturers, should also benefit from the current supply crisis, as it operates its own fabs, in contrast to competitors such as AMD and Qualcomm, who are dependent on third-party providers. The company also recently announced that it is in talks with companies developing chips for automakers to produce their chips in Intel foundries. The stock is up 18% this year.
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