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Semiconductor stocks have been an integral part of the broader technology space thanks to consolidation activities and innovative technologies. Areas like autonomous cars, 3D printers, health and fitness devices and IoT are fueling growth in the sector, offsetting struggling traditional businesses like PCs and smartphones.
The space was a winner in the peak of the pandemic. As the pandemic supercharged the demand for computing, semiconductor industry’s annual sales exceeded $500 billion last year. Though VanEck Semiconductor ETF (SMH - Free Report) is down 25.5% this year versus a 24.6% decline in the largest technology ETF XLK, the fund SMH has lost much lesser 2% past month versus a 6.3% decline in (XLK - Free Report) and a 7% decline in the S&P 500.
The demand is high for semiconductors/chips while the industry is reeling under supply shortage. The world’s biggest foundries — including Taiwan Semiconductor Manufacturing Company, Samsung and Intel — are thus considering further price hikes, per a CNBC article. Forrester analyst Glenn O’Donnell told CNBC that he expects chip prices to rise about 10-15%, or roughly in line with inflation. McKinsey expects it to become a trillion-dollar industry by 2030.
“Foundries have already increased prices 10-20% in the past year,” Bain semiconductor analyst Peter Hanbury told CNBC. “We expect a further round of price increases this year, but smaller (i.e. 5-7%),” the CNBC article highlighted.
“The chemicals used in [chip] manufacturing have increased 10-20%,” Hanbury said. “Similarly, the labor required to build new semiconductor facilities has also seen shortages and increased wage rates.” TSMC informed clients for the second time in less than a year that it plans to raise prices, Nikkei Asia reported last Tuesday, as quoted on that CNBC article. Apart from supply-chain related issues, rising energy prices have also boosted costs of chip manufacturing.
Further, the semiconductor space has also been witnessing mergers and acquisitions, providing a boost to stock prices. The announcements of Advanced Micro Devices (AMD)-Xilinx (XLNX), Western Digital (WDC)-Japan’s Kioxia and Nvidia (NVDA)-Arm Ltd deals are among of the noted ones.
Against this backdrop, below we highlight a few semiconductor ETFs that could be tapped on the trend reversal. Some of these ETFs fared better the S&P 500 past week (down 2.81%).
ETFs in Focus
VanEck Semiconductor ETF (SMH - Free Report) – Down 2.6% Past Week
First Trust Nasdaq Semiconductor ETF (FTXL - Free Report) – Down 2.5% Past Week
Invesco Dynamic Semiconductors ETF (PSI - Free Report) – Down 2.2% Past Week
VanEck Semiconductor ETF (SMH - Free Report) – Down 1.8% Past Week
SPDR S&P Semiconductor ETF (XSD - Free Report) – Down 0.3% Past Week
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Time for Semiconductor ETFs?
Semiconductor stocks have been an integral part of the broader technology space thanks to consolidation activities and innovative technologies. Areas like autonomous cars, 3D printers, health and fitness devices and IoT are fueling growth in the sector, offsetting struggling traditional businesses like PCs and smartphones.
The space was a winner in the peak of the pandemic. As the pandemic supercharged the demand for computing, semiconductor industry’s annual sales exceeded $500 billion last year. Though VanEck Semiconductor ETF (SMH - Free Report) is down 25.5% this year versus a 24.6% decline in the largest technology ETF XLK, the fund SMH has lost much lesser 2% past month versus a 6.3% decline in (XLK - Free Report) and a 7% decline in the S&P 500.
The demand is high for semiconductors/chips while the industry is reeling under supply shortage. The world’s biggest foundries — including Taiwan Semiconductor Manufacturing Company, Samsung and Intel — are thus considering further price hikes, per a CNBC article. Forrester analyst Glenn O’Donnell told CNBC that he expects chip prices to rise about 10-15%, or roughly in line with inflation. McKinsey expects it to become a trillion-dollar industry by 2030.
“Foundries have already increased prices 10-20% in the past year,” Bain semiconductor analyst Peter Hanbury told CNBC. “We expect a further round of price increases this year, but smaller (i.e. 5-7%),” the CNBC article highlighted.
“The chemicals used in [chip] manufacturing have increased 10-20%,” Hanbury said. “Similarly, the labor required to build new semiconductor facilities has also seen shortages and increased wage rates.” TSMC informed clients for the second time in less than a year that it plans to raise prices, Nikkei Asia reported last Tuesday, as quoted on that CNBC article. Apart from supply-chain related issues, rising energy prices have also boosted costs of chip manufacturing.
Further, the semiconductor space has also been witnessing mergers and acquisitions, providing a boost to stock prices. The announcements of Advanced Micro Devices (AMD)-Xilinx (XLNX), Western Digital (WDC)-Japan’s Kioxia and Nvidia (NVDA)-Arm Ltd deals are among of the noted ones.
Against this backdrop, below we highlight a few semiconductor ETFs that could be tapped on the trend reversal. Some of these ETFs fared better the S&P 500 past week (down 2.81%).
ETFs in Focus
VanEck Semiconductor ETF (SMH - Free Report) – Down 2.6% Past Week
First Trust Nasdaq Semiconductor ETF (FTXL - Free Report) – Down 2.5% Past Week
Invesco Dynamic Semiconductors ETF (PSI - Free Report) – Down 2.2% Past Week
VanEck Semiconductor ETF (SMH - Free Report) – Down 1.8% Past Week
SPDR S&P Semiconductor ETF (XSD - Free Report) – Down 0.3% Past Week