There is a global semiconductor shortage hurting car and smartphone companies, here’s how investors can benefit
A group of analysts are discussing how investors can take advantage of the global semiconductor shortage this year by investing in stocks that are expected to thrive on strong demand for chips.
Alix Partners, a consulting firm, predicts that the global auto industry will lose $ 60.6 billion in revenue this year due to the chip shortage that automakers rely on for a multitude of purposes, including units engine control units (which run the internal combustion engine), instrument clusters (a digital panel including a speedometer and fuel gauge), MEMS accelerometers (which measure the acceleration of the car), as well as infotainment systems, power steering and brakes.
Chips are also essential components of iPhones and personal computers, among many other widely used products including game consoles and electric vehicles.
The semiconductor shortage is rooted in the unusually large demand last year for new personal computers, smart TVs, laptops, consumer electronics and computer games (all of which need chips) from millions of stuck-on customers. house during the pandemic, according to Quint Tatro, chief investment officer at Joule Financial, an investment advisory firm with $ 220 million in assets.
Meanwhile, the pandemic has shut down chip production facilities in China and Taiwan [two dominant chip producing nations] which puts a strain on the supply.
According to market research firm IDC, global PC shipments totaled 302.6 million units in 2020, a 13.1% jump from the previous year – the highest annual growth rate since 2010, when the PC market grew. increased by 13.7% (due to pent-up consumer demand following the financial crisis).
Tatro notes that there is no consensus on how long this chip shortage will last. “It could be two quarters, it could be two years,” he says. “No one really knows.” Robert Lambert, investment strategist at Strategic Wealth Partners in Independence, Ohio, which manages $ 500 million in assets, says he expects semiconductor supply to remain “tight” through 2021 and that demand from automakers is expected to remain high until 2022. How should investors play? Tatro says they should make wise choices among the chipmakers themselves, as many have become very popular in recent months: Philadelphia Semiconductor Index jumped 45% from the recent lows of Oct. 28 through Friday. The biggest chip company of all, Taiwan Semiconductor is now trading at a 12-month rolling price / earnings ratio of 61.28 (vs. a PE of 39.78 for the S&P 500). Taiwan Semiconductor shares have climbed 63.7% from late October through Friday, but Lambert believes Taiwan Semiconductor will continue to thrive. “Given the current order book, visibility is high for Taiwan Semiconductor until at least 2022 and this justifies a higher valuation compared to its peers,” he said. Tatro loves Intel. “They will dramatically increase production of chips in the United States,” he says, suggesting the company can help meet new demand. Intel shares trade to a very reasonable PE of 12.76. Advanced micro-systems is another chip stock Tatro likes, but with a PE of 43.4 he’s waiting for a pullback before buying. David Bahnsen, chief investment officer at The Bahnsen Group, a Newport Beach, Calif., Wealth management firm with $ 2.6 billion in assets under management, is bullish on NXP Semiconductors, which is “very exposed to the automotive industry, with around 50% of its revenue coming from the automotive industry, so the company is expected to disproportionately benefit from the chip shortage. Lambert also likes Lam Research, which manufactures and services equipment used in foundries of chipmakers, with Taiwan Semiconductor and Samsung as major customers. Brett Sifling, investment advisor at Gerber Kawasaki Wealth & Investment Management in Santa Monica, Calif., Which has $ 1.7 billion in assets under management, says chipmaker Nvidia will benefit from the chip shortage as demand is so high for their products, especially in crypto. – mining and gambling. Sifling also believes electric car maker Tesla could benefit, citing that it recently formed a agreement with samsung develop its own chip.
Outside of the chip business, another way to play the semiconductor shortage is with auto parts dealers, Tatro says. “As the chip shortage forces major automakers like Ford and GM to cut back on production, we believe more car owners may be looking to defer buying new cars and tinkering and upgrading their vehicles. existing. He cites potentially interesting stocks like Advanced Auto Parts and Genuine Parts Company.
Monday, Olivier blume, chief executive of German luxury automaker Porsche, has warned that the chip shortage could affect its operations for months. “The subject of semiconductors is very serious because the whole industry is affected due to the high demand for consumer electronics and the faster return of the automotive sector,” he told CNBC. “We could be affected every day, so we [will] look very deeply [over] the next few days and months what we can do.