Semiconductor ETFs have been in the sweet spot thanks to surging demand for chips from manufacturers of everything from smartphones to cars, laptops, PCs, video games and data centers. 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. Plus, robust M&A activities have aided the sector in recent times.
lobal semiconductor industry sales jumped 14.7% year over year to $39.6 billion in February 2021, the Semiconductor Industry Association (“SIA”) reported on Apr 5 citing data compiled by the World Semiconductor Trade Statistics. This marks year-over-year growth of 13.2% registered in January 2021 and 6.8% recorded for full-year 2020.
SIA noted that semiconductor sales in February increased across all regions, with China recording the largest growth of 18.9%. Asia Pacific/All Other, the Americas, Japan and Europe posted a year-over-year increase of 18.2%, 9.7%, 7.6% and 6.8%, respectively.
Factors That Have Been Fueling Demand
Rally in cryptocurrencies like bitcoin prices and the 5G rollout are the winning points. The accelerating speed of digitization in various corners like healthcare, transport, financial systems, defense, agriculture and retail has been making the future bright for semiconductors.
The automotive sector has specifically advanced to include more electronic components in vehicles that rely on chips. Auto sales are poised to rebound in the near term thanks to the ebbing pandemic and growing vaccination. This has resulted in a sharp demand for chips, in fact, supply shortages.
IHS Markit expects the global auto market to surge by 9% to 83.4 million this year, grow another 5% in 2022 to 86.9 million followed by another solid 4% growth in 2023 to 89.7 million despite lockdowns in some corners of the world at this moment.
Additionally, robust recovery in smartphone sales is spurring demand for semiconductors. According to the
forecast by Gartner, worldwide sales of smartphones will likely increase 11.4% year on year to 1.5 billion units in 2021. Gartner analyst Anshul Gupta indicated that the availability of the lower end 5G smartphones is likely to push up smartphone sales in 2021.
Apple's iPhone 12 handsets should also prove beneficial for the sector. Growing business from emerging Chinese smartphone makers, Oppo, Vivo and Xiaomi are the other positives for the space.
Why Semiconductor ETFs Could Rally
Even after a great 2020, several semiconductor ETFs are cheaper than the Nasdaq 100 ETF
Invesco QQQ ( QQQ Quick Quote QQQ - Free Report) . The second-most priciest semiconductor ETF ( SMH Quick Quote SMH - Free Report) is now trading at nearly 33.99X times P/E, while QQQ is trading at a P/E 35.32X. The least-pricey semiconductor ETF ( PSI Quick Quote PSI - Free Report) trades at a P/E of 30.88X.
Plus, investors are rotating into cyclical sectors given the widespread vaccination. Since the likelihood of a faster economic reopening in 2021 means more business activity, semiconductor stocks should gain support. And if there is any renewed virus-related tension, then the tech boom will also keep providing the semi space great support.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.
Get it free >>