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Gear Up for the Semiconductor Super Cycle

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.

Here’s why…

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.

Check out Ian’s latest presentation to learn more.

Regards,

a black and white drawing of a hand with a long pointy point

Steve Fernandez

Research Analyst, Strategic Fortunes

 

Morning Movers


From open till noon Eastern time.

 

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Blue Apron Holdings Inc. (NYSE: APRN) operates a direct-to-consumer platform that delivers ready-to-cook meal kits. The stock is up 35% after it announced capital investment and refinancing moves that add up to a $70.5 million capital infusion in the company.

 

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Forge Global Holdings Inc. (NYSE: FRGE) enables private company shareholders to trade private company shares with accredited investors. There is no business specific news today; rather, the stock is up 27%, continuing on the volatility it has seen since it went public in late March.

 

Hilltop Holdings Inc. (NYSE: HTH) provides business and consumer banking, and financial products and services. It is up 18% after the company announced a modified Dutch auction tender offer to repurchase up to $400 million of common stock.

 

Griffon Corp. (NYSE: GFF) is a multinational conglomerate that primarily provides consumer and professional, and home and building products through its subsidiaries. The stock is up 16% after analysts at Raymond James upgraded the stock to a strong-buy rating and raised its price target.

 

Zymeworks Inc. (NYSE: ZYME) discovers, develops and commercializes biotherapeutics for the treatment of cancer. The stock is up 14%, continuing its run-up from Friday after the company received a buyout offer from a division of the private equity group All Blue Capital.

 

Silk Road Medical Inc (Nasdaq: SILK) is a medical device company that offers various products for the treatment of carotid artery disease. It is up 14% after the FDA expanded the approval for its new transcarotid stent system to include patients who are at standard risk for adverse events from carotid endarterectomy.

 

Novavax Inc. (Nasdaq: NVAX) discovers, develops and commercializes vaccines to prevent serious infectious diseases and address health needs. It is one of the COVID-19 vaccine stocks that rose 13% on the news that Pfizer’s COVID-19 pill failed as a preventative therapy.

 

Wayfair Inc. (NYSE: W) is an international e-commerce company that is up 10% today. The stock is on a rebound thanks to a positive outlook from investment firm Alphyn Capital after being dragged down last week due to Amazon’s poor earnings.

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