Gear Up for the Semiconductor Super Cycle
Ian King and I are gearing up for a long rally in semiconductor stocks.
Semiconductors are found in countless electronic devices, making them critical to the growth of several mega trends.
Trends like electric vehicles, industrial automation and solar energy won’t reach their potential without them.
But here’s the thing: Our view on semiconductors contradicts history.
We expect a long-term boom in semiconductors. Yet historically, the chip industry has been cyclical.
The Semiconductor Boom Is Just Getting Started
The cyclicality comes down to supply and demand.
When businesses and consumers are spending more on end-markets like cellphones and vehicles, demand for chips increases.
The opposite is true when spending is reduced.
The boom/bust nature of the cycle has meant chip companies’ revenue and earnings have risen and fallen over time.
In the past, semiconductor booms have lasted about four to five years, followed by a 12-month period of weakness.
Based on history, this would suggest the current semiconductor boom will last until 2023 or 2024.
In reality, I expect the semiconductor boom to last much longer, as the industry’s end-markets flourish.
Vehicles Are Becoming Electrified
We’re in the early innings of several mega trends that are reliant on chips.
The most imminent is the transformation of the auto market.
Vehicles are becoming electrified and are using more advanced technologies.
This means the number of chips needed for production is greater.
Gas-powered vehicles require about 1,000 chips. But electric vehicles (EVs) need upward of 3,000.
This number will only continue to increase as vehicle autonomy evolves.
Most auto brands already have numerous models with level two autonomy.
This enables them to perform autonomous functions like steering, accelerating and braking.
Plus, fully self-driving vehicles are right around the corner. Robo-taxi fleets have already logged millions of miles driven.
Waymo and Cruise accounted for over 3 million self-driving miles in 2021 alone.
EV Sales Are Crushing Expectations
It’s hard to predict the timeline as to when fully self-driving vehicles will be available to consumers.
There are several regulatory hurdles that will have to be overcome for this to happen.
But Ian and I are confident in the trajectory of EV growth.
We expect 90% of new vehicles sold will be EVs by the end of the decade.
Our prediction is off to a good start. EV sales crushed expectations in 2021.
They accounted for 8.6% of new vehicles sold last year.
That’s well above estimates that expected their share to be below 4%.
Growth from the EV market alone will fuel a long-run cycle for semiconductors and other materials.
Factor in demand from other mega trends, and this is shaping up to be a super cycle.
How to Invest in Tech’s Biggest Mega Trends
The iShares Semiconductor ETF (Nasdaq: SOXX) will give you exposure to the semiconductor boom.
But there’s another boom happening that you might not realize.
Like semiconductors, it’s also being fueled by the EV market.
Research Analyst, Strategic Fortunes
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