Should You Invest in The Semiconductor Industry?
The semiconductor industry has been making headlines over the past couple of years for a few reasons… and not all being good. This projected trillion-dollar industry has faced bottleneck supply shortages of everything from computers to cars. We can see in many ways how our world “runs-on” semiconductors. With lawmakers recently passing the CHIPS Act, a legislation aimed at providing governmental funding to strengthen domestic semiconductor manufacturing, chip demand has been on the rise more than ever. It’s a great time to do a deep-seated analysis of where the semiconductor market is heading, and which companies will help drive long term demand.
What are Semiconductors?
Semiconductors are a popular component of microchips in electronic devices since they serve to control the electrical current. Semiconductors sit between the conductor (substance that can conduct electricity) and the insulator (substance that cannot conduct electricity). Semiconductors are made with an electrical resistance material which allows it to control the flow of electricity. In simpler words, a semiconductor kind of “semi-conducts” electricity.
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Supply and Demand problems
With less supply and more demand, it is without a doubt that the semiconductor chip shortages have been worsened by the pandemic. Many automakers decreased or even cut their chip orders drastically in early 2020 as a result of decrease vehicle sales. Demand recovered faster than expected in late 2020 and although chip manufactures have been increasing production, the shortfall won’t be fixed instantly. The main reason being the semiconductor industry has already shifted production lines to meet demand for other requests. Thus, an even bigger gap between supply and demand was created.
To hedge against bottleneck supply shortages, America has been trying to strengthen domestic semiconductor manufacturing. On July 28, 2022, congressed passed the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act. This $280 billion package includes $52 billion in funding for semiconductor manufacturing companies with the purpose of reestablishing American leadership in technology that is vital to the US economy. In addition, the bill allocates towards research in artificial intelligence (AI), machine learning, and other cutting-edge fields.
Key Players in the Semiconductor Industry
Semiconductors and technological advancements go hand in hand. Advancements in technology will open up new possibilities across all industries—especially the semiconductor industry. Although the semiconductor industry is highly cyclical and volatile, long-term trends of chip stocks have shown that they can withstand the tech bear markets. With that being said, below are our top 3 US semiconductor companies to invest in.
1. Advanced Micro Devices
Advanced Micro Devices (AMD) specializes in manufacturing semiconductors that are used in computer processing. In addition, they also produce a variety of other components used in consumer electronic. AMD reported earnings per share of $1.05 on August 2 which beat the market estimates by $0.01.
From the candlestick chart above, we can see that trading volume is increasing with increase in price. More recently after the CHIPS act got passed, the price rise is supported by increasing trading volume. Since 5 period moving average is higher than 20 period moving average, investors should go long with their position.
2. Nvidia
Nvidia (NVDA) specializes in computer products used in the growing markets for gaming as well as professional visualization. In addition, NVDA is the developer of GPU-accelerated computing. NVDA reported earnings per share of $1.36 on May 25 which beat the market estimates by $0.06.
From the candlestick chart above, we can see the price and trading volume seem to be rising together but after the CHIPS act got passed price has been increasing and trading volume has dipped. The low trading volume reflects the demand to buy Nvidia which adds support to the upward direction of the market. Since 5 period moving average is higher than 20 period moving average, investors should go long with their position.
3. Intel
Intel Corp. (INTC) markets technology mostly to smart devices such as PCs and server chips. We consider this our best pick to invest in since it’s one of the most broad-based companies in the semiconductor industry. The company reported earnings per share of $0.29 on July 28 which missed the market estimates by $0.41. However, now with the CHIPS and Science Act passed, we will likely be seeing Intel’s chip-making facility outside of Columbus ramping up production. Considering that Intel is one of the cheapest blue-chip stocks, we think this would be a great opportunity to get into the semiconductor industry.
From the candlestick chart above, it appears the price is in a rising trend; however, more recently after the CHIPS act got passed, price has been decreasing and trading volume has been increasing. The price increase is losing its momentum while trading volume is up. We will likely see the volume stabilize before the price begins to increase. Although, 5 period moving average is lower than 20 period moving average, investors should go long with their position and others can buy Intel stocks because the company will benefit from the CHIPS act.
The information contained in this blog is intended for educational and informational purposes and is NOT intended as investment advice. This is NOT an offer, solicitation, or recommendation to trade securities or other assets. Information in this blog is subjected to change and we are NOT under any agreement to revise information provided here. You must make an individual decision concerning any investment suggestions in this blog. You should be aware of the risk involved when making investment decisions as discussed thus far. Once again, this information is considered “as is” and should NOT be considered as trading advise.