A global semiconductor chip shortage has taken its toll on the tech industry, the automotive industry, the consumer electronics industry and everything in between with massive increases in the supply chain. The Covid-induced global chip shortage has severely affected production in a number of industries, from cars to consumer devices, smartphones and personal computers. The trade war between the United States and China has only made a bad situation worse.
About a year ago, the US Department of Commerce said that the Chinese chip maker International semiconductor manufacturing, Where Minimum wage, persona non grata after determining that the company supplies chips to the Chinese military, making it a threat to national security. The federal government restricted minimum wage of obtaining some US-regulated chip-making equipment, which led US buyers to cut back on the company’s orders. SMIC is one of the largest semiconductor chip manufacturers, accounting for around 5% of the global semiconductor supply. Although the Biden administration recently SMIC and Huawei suppliers granted Billions of dollars in licenses from November to April that allow them to sell them goods and technology despite being blacklisted in U.S. commerce, it remains to be seen whether this move will alleviate the shortages.
The alarming part: Some experts expect supply chain problems to last until 2022.
But while the global chip shortage has been a nightmare for the companies that make cars and home appliances as well as the people who buy them, investors in semiconductor stocks are hardly complaining as they continue to see price increases. disproportionate gains on their investments.
For example, the actions of the manufacturer of games and automatic chips Nvidia Corp. (NASDAQ: NVDA) have gained 40% in the past 30 days; those of the manufacturer of chips for smartphones Qualcomm Inc. (NASDAQ: QCOM) are up 38% while those of the computer chipmaker Advanced Micro Devices Inc. (NASDAQ: AMD) added 25%.
Overall, the largest semiconductor benchmark, ETF iShares PHLX SOX Semiconductor Sector Index (NASDAQ: SOXX) is up 15% in recent months compared to a modest 4% gain by the S&P 500.
investment bank JP Morgan recommends that investors pursue longer-term trends in the semiconductor space that are more structural than cyclical. Structural trends tend to be permanent long term changes in an industry, while cyclical trends are influenced by the business cycle and tend to be short lived.
JPM recommends investing in very high-end IT segments, noting that there is an ongoing disruption of high-end IT globally, which was once very monolithic but is now fragmented as more more companies are entering space.
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JPMorgan also recommends investing in semiconductor companies that focus on traditional long-tail technologies. These companies manufacture a variety of less advanced chips in areas such as power management, microcontrollers, sensors, and other consumer-related segments.
With that in mind, here are our top semiconductor chip stocks for long-term investors.
# 1. Taiwan Semiconductor Manufacturing Company Limited
Taiwan Semiconductor Manufacturing Company Ltd (NYSE: TSM) is the world’s largest subcontractor of semiconductor chips. The company has technology heavyweights such as Apple Inc. (NASDAQ: AAPL), Nvidia and Qualcomm as clients. In fact, TSMC is so dominant that it accounted for 54% of total foundry revenue globally last year, according to TrendForce data.
TSMC makes some of the most advanced chips for factoryless technology companies that don’t have their own foundries. Last month, Wedgewood Partners, an investment management firm, said this about TSMC:
“Semiconductor manufacturing in Taiwan detracted from performance as the market tried to account for a downturn in the semiconductor cycle. While there are signs that the memory markets may be in a bit of a surplus, we have yet to see any tangible signs that logical semiconductors – especially at the top nodes where the company dominates – are anything but. rare. In addition, and because of this strong demand, the Company should be able to pass on price increases to help finance very attractive returns on the scarce peak capacity that serves this demand. “
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Indeed, TSMC is would increase prices 10% for advanced chips, while less advanced chips – commonly used by automakers – would cost 20% more.
# 2. ASML Holding
ASML Holdings (NASDAQ: ASML) is a Dutch manufacturer of semiconductor equipment. ASML develops, produces, markets, sells and services advanced semiconductor equipment systems including lithography, metrology and inspection related systems for memory and logic chip manufacturers. The company is the world’s largest manufacturer of lithography machines used to etch circuit patterns on silicon wafers. Indeed, ASML is the only manufacturer in the world of high-end Extreme Ultraviolet (EUV) lithography machines needed to manufacture the smallest and most advanced chips.
So it’s no surprise that ASML matters Semiconductor manufacturing in Taiwan , Intelligence (NASDAQINTC) and Samsung (OTC: SSNLF) as top customers for its EUV machines. ASML has seen strong demand for its advanced chip-making machines, helping the company grow its revenue by 35% in the current year, up from 18% growth in 2020. Helped increase its gross margins of 75 basis points to 52.2% in 2021 compared to 2019.
# 3. UMC Company
United Microelectronics Corporation (NYSE: UMC) is another Taiwan-based wafer foundry with operations in the United States, Europe, China, Singapore, Hong Kong, and Japan. The company serves factoryless design companies and integrated device manufacturers, and provides circuit design, mask tooling, wafer fabrication, assembly and testing services.
Unlike TSMC which makes some of the most advanced chips in the world, UMC mainly makes larger and cheaper automotive and IoT chips for cars and other gadgets. You can think of UMC as TSMC’s smaller and less glamorous peer.
UMC reported YoY sales increased 17.89% yoy to NT $ 173.07 billion, with October net sales increasing 25.36% yoy to NT $ 19.16 billion, compared to NT $ 18.75 billion in September. Wall Street remains quite bullish on UMC with a price target of $ 13.77, good for a 21% hike.
By Michael Kern via Safehaven.com
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