January 2023


Semiconductors – What’s the fuss?

Semiconductors, or more colloquially “chips”, have been a major focus of financial market participants in recent years. But why? What makes these pieces of technology so important to the world’s future? Well, for context, let’s consider you, and your journey from waking up to getting to work this morning. Your smartphone which you no doubt checked before hopping in the shower, will
have up to 6 chips in it. If your geyser is on a timer, there is a few more. Your kitchen where you made your breakfast is full of chips, in your fridge, freezer, coffee machine and microwave. If you
switch on your television or computer before leaving for work, there are a dozen more in those devices and your car which you drive to work in likely has thousands of chips in it. Chips are
everywhere, and in a world where artificial intelligence, augmented reality and smart devices are creeping into the daily lives of ordinary people, the demand for these tiny but highly sophisticated
pieces of technology is ever-growing.

In fact, the semiconductor industry is forecasted to bring in more than $1 Trillion in revenue by 2030. It is this growth potential along with incredible margin prospects that exist amongst some of
the major chip companies, their equipment manufacturers and their chip designers that has made many of these companies extremely appealing for investors. At the time of writing, of the 24
technology stocks listed on the Nasdaq 100, 10 of these are chip stocks.

After a torrid 2022, chip stocks have bounced back in January, driving the Nasdaq northwards:

Semiconductor Outperformance in January


Although prone to volatility for various exogenous factors, we are convinced that over the long-term, semiconductor companies will end up being some of the world’s most important institutions.
With plenty of companies to choose from, picking the long-term winners will no doubt be one of the differentiating factors for investors over the next decade.

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