Semiconductor stocks are improving after a difficult 2022. The iShares Semiconductor ETF is up 11% this year, in stark contrast to the index’s 35.8% decline in 2022. The once-booming sector saw a slowdown last year, given declining demand for consumer products such as smartphones and personal computers; supply chain disruptions; and a broad sense of risk aversion in the stock market. Today, however, investors appear to be heeding the advice of several Wall Street pros who have urged them to take a longer-term view of the sector, given the importance of chips in several key secular trends. Electric Vehicles One such trend is the growing popularity of electric vehicles. Semiconductor chips are an important component of electric vehicles, and that’s why veteran fund manager Trent Masters is bullish on Arizona-based semiconductor supplier ON Semiconductor. “65% of the activity is automotive and industrials and while you have this incredible volatility in the half cycle, especially around memory, you have a lot of content gains on the hardware side. automotive that help gain the edge on this cycle,” Masters, portfolio manager at Alphinity Investment Management, told CNBC Pro Talks last week. He added that the company will benefit from e-content gains as consumers shift from traditional internal combustion engine vehicles to electric vehicles, as well as the shift to assisted and autonomous driving. Masters said a traditional driver-assisted vehicle has about $150 worth of e-content, while a “Level 5” autonomous vehicle has about $1,600 worth of e-content. “It’s their content story that provides a degree of disconnection with the broader automotive cycle and provides a degree of revenue resilience. In terms of execution so far, it’s been flawless,” a- he declared. FactSet data shows that more than 70% of analysts covering the stock give it a “buy” rating, with an average upside of 13.7%. An “absolutely unique” business master is also a fan of the Dutch chip company ASML. “It’s one of those very few companies that is absolutely unique in terms of what it can do in advanced lithography, being able to sketch these state-of-the-art chips and allowing those chips to keep getting smaller,” he said. The company sells $200 million in extreme ultraviolet lithography machines, needed to make the most advanced chips, to semiconductor manufacturers such as Taiwan Semiconductor Manufacturing Company. As the only company in the world capable of producing such machines, ASML enjoys “very high” gross margins and an “incredible” market position, according to Masters. He described the company’s supply chain management as exceptional, and while demand for semiconductor chips may remain volatile in the short term, he sees business growing at a rate of 15% per year. over the next three to five years. “We also have very good growth prospects through 2030 as they work on the next breakthrough in terms of technology,” Masters said. According to FactSet data, around 84% of analysts covering the stock rate it as a buy, giving it an average upside of 15.1%.
