Sector Overview - Semiconductors
Sector Overview
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Macro Minute:
CPI data was released for the United States by the FED and the published number was 7.9% for the year-over-year inflation for the month of February. This data did NOT include things like meat, eggs, gas, electricity, housing, and even eating at home. It is wild how manipulated the CPI number is and it is STILL at 7.9%. The White House Press Secretary Jenn Psaki has gone in front of the cameras to say that this inflation is caused by the war going on in Ukraine caused by Russia and Vladimir Putin, although this number is for the month of February and the war started after February. The war in Ukraine does not help with certain commodities because the United States has become more reliant on foreign countries. The potential for another conflict between China and Taiwan can drastically affect markets as well. Inflation is rampant and it does not seem to be slowing down.
Sector Description: What are Semiconductors?
Semiconductors are used for computing, graphics, and many other digitally based products. Overall semiconductors have thousands of use cases and certain companies specialize in manufacturing chips for a specific sector. This is a rapidly growing industry and the need for semiconductor chips has increased exponentially with the rise of computing and access to computing power in seemingly every product.
Large Public Companies in the Sector
Taiwan Semiconductor Manufacturing Company (Ticker: TSMC) - Market Cap: $524.75B
Intel Corp. (Ticker: INTC) - Market Cap: $186.57B
Qualcomm Inc. (Ticker: QCOM) - Market Cap: $171.69M
Opportunities for Broad Exposure
Currently there are a few ETFs that contain large semiconductor manufacturing companies, but the ETF with the largest exposure to the semiconductor industry is the VanEck Semiconductor ETF (ticker: SMH). You can read the report of this ETF here.
Key Metrics and Considerations
Purpose of Semiconductors: The purpose of the semiconductors manufacturing a company plays a major role in the amount a company can grow. Chips can have multiple uses, but if a company manufactures chips and a specific use case has been developed for their product this can benefit a company long term.
Clientele: Similarly to the purpose of the semiconductors, the clientele play a major role in how large a semiconductor can be. The clients can help a semiconductor company build a reputation and moat in a specific sector that can make their product more desirable. Large clients can make for consistent revenue and the consistent revenue can allow for more research and development of better chips. The reliance on a major company can be detrimental for a company as a major client can make one change or begin to develop their own chip and wipe out a large portion of their revenue.
Geopolitical stability: With current major issues in the supply chain, the war between Ukraine and Russia, and the potential war between China and Taiwan, the geopolitical status of a nation where a company is located is more important now than ever. External factors that can affect a business can hurt clientele and potentially ruin business relationships without any issue with the product.
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Opinion of Sector
I am extremely bullish on the sector going forward as more and more products include some sort of computing power. It is currently a down time for this market as many companies are facing supply chain issues and it is forcing the hand of companies to determine who their chip supplier will be going forward. Every automobile, computer, gaming system, and seemingly product now has some sort of screen and globally people are in front of screens more often than they are not. With this trend continuing it will be a matter of time before everything has some sort of chip in it. The companies that are experts in this industry and have developed great products will prevail and be extremely successful going forward.
Video edition: Sunday Scaries Stock Talk
Join us over the next several weeks as we dive into public companies in the Semiconductor industry. Stay up to date on Green Candle by subscribing to our newsletter and following us on Twitter and Instagram! And don’t forget to join us in our Twitter Spaces Tuesday nights at 8 PM EST!
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Have a great week everyone,
Brandon
Disclosure: The article was written by Brandon Keys, and it expresses the author's own opinions. He is not receiving compensation for it. He has no business relationships with any company whose stock is mentioned in this article. The information presented in this article is for informational purposes only and in no way should be construed as financial advice or recommendation to buy or sell any stock. Brandon is not a financial advisor. I encourage all readers to do further research and do your own due diligence before making any investments.