The global semiconductor industry is in a sweet spot now. The best-performing semiconductor ETF VanEck Vectors Semiconductor ETF (SMH Quick QuoteSMH - Free Report) is up 55.1% this year. The least gain has been offered by First Trust Nasdaq Semiconductor ETF FTXL), which is up 44.3% so far this year.

Inside the 2020 Drivers

Solid industry trends, the pandemic-induced upsurge in the technology sector and robust M&A activities have aided the sector this year. The stay-at-home trend amid the coronavirus outbreak, which has bolstered the demand for gaming chips, cloud computing and data center business, has proven to be a boon for the semiconductor space.

Rally in cryptocurrencies like bitcoin prices and 5G rollout are the other winning points. The accelerating speed of digitization in various corners like healthcare, transport, financial systems, defense, agriculture and retail has been enhancing the future for semiconductors.

The space is buzzing with mergers and acquisitions. Chip producer Advanced Micro Devices (AMD) is in advanced talks to buy peer company Xilinx for more than $30 billion. In September, the chip industry benefited from Nvidia’s acquisition news of Arm Limited for $40 billion. The Nvidia deal was the biggest in the semiconductor industry. As a result, the space soared massively last week (read: After A Record Q3, Can M&A Soar In Q4? ETFs In Focus).

President Trump and his trade and tariff war with China and many other parts of the globe like Europe and Japan are known to all. However, Biden’s victory in the U.S. presidential election in November meant no further extreme U.S.-China trade tensions. This possibility of no more trade hostility bodes well for semiconductor stocks as the space has substantial revenue exposure to China.

Semis Are Likely to Soar Further in 2021

Per the latest report from the World Semiconductor Trade Statistics (WSTS) released in December, the global semiconductor market is expected to increase 5.1% year over year this year driven by memory and sensors.

For 2021, growth is projected at 8.4% based on the solid growth of memory and optoelectronics. All other product categories are likely to exhibit positive growth rates. All regions too are expected to grow next year. This piece of information charged up the semiconductor stocks last week.

Moreover, even after a great 2020, Semiconductor ETFs are cheaper than the Nasdaq 100 ETF Invesco QQQ (QQQ Quick QuoteQQQ - Free Report) . The priciest semiconductor ETF SMH is now trading at nearly 29.37 times P/E, while QQQ is trading at a P/E 30.85X. The least-pricey semiconductor ETF (PSI Quick QuotePSI - Free Report) trades at a P/E of 23.94X.

Plus, investors are rotating into cyclical sectors given the potential for coronavirus vaccines from various pharma companies like Pfizer and Moderna. Since the likelihood of a full economic reopening in 2021 means more activity in the economy, semiconductor stocks should gain support. And if there is any delay in vaccine rollout, then the tech boom will keep providing the semi space great support.

The 5G wireless upgrade cycle, including Apple's (AAPL Quick QuoteAAPL - Free Report) upcoming iPhone 12 handsets, should prove beneficial for the company. Growing business from emerging Chinese smartphone makers, Oppo, Vivo and Xiaomi are the other positives for the space.

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