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What Lies Ahead for Semiconductor Stocks & ETFs?

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·3 min read
In this article:
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  • (1:10) - Computer Chip Importance and Why Is There Such A Big Shortage in Supply?

  • (10:20) - The Rise of TSMC and Fall Of Intel

  • (17:20) - In House Chip Design and Semiconductor Consolidation

  • (21:30) - Semiconductors To Keep On Your Radar

  • (27:05) - Episode Roundup: Podcast@Zacks.com


In this episode of ETF Spotlight, we focus on semiconductor stocks & ETFs. Chips, the basic building blocks of computation, have become integral in everything from smartphones to cars, laptops, PCs, video games and data centers. As the pandemic supercharged the demand for computing, the world is now facing the worst chip shortage in many years.

In the first part of the episode, my guest is Zacks Stock Strategist David Bartosiak. We discuss the outlook for the semiconductor industry and Dave’s favorite chip stocks. In the second part, I highlight the most popular semiconductor ETFs.

As cars have become increasingly digital, their chip usage has surged in all components. Many automakers are cutting production as they are unable to procure enough chips. The shortage is likely to impact many other industries as well, particularly consumer electronics like smartphones and video game consoles.

Just about 12% of chips are produced in the US now, down from 37% in 1990. Taiwanese chipmaker TSMC TSM, the world’s largest and most advanced contract chip manufacturer, is used by leading US chip companies including Nvidia NVDA and AMD AMD for production of high-end chips.

Intel INTC, which still uses its own factories to manufacture the chips it designs, has fallen way behind TSMC in the manufacturing technology.

TSMC recently announced it expects the 2021 capital budget to be between $25 billion and $28 billion—double the annual capex that Intel has averaged over the past five years, per WSJ.

Last week, President Biden signed an executive order which includes a review of supply chains for semiconductors. It is not expected to fix the near-term chip shortage.

Tech giants such as Apple AAPL and Amazon AMZN are now designing some of their chips in-house, but they still have to rely on Asian manufacturers.

Semiconductor ETFs were among the best performing areas of 2020, with soaring demand from areas like cloud computing, video gaming and data centers.

The iShares PHLX Semiconductor ETF SOXX is a modified market cap weighted ETF. It has 30 holdings with a cap of 8% on individual securities. Intel and Broadcom AVGO are its top holdings.

The VanEck Vectors Semiconductor ETF SMH also follows a market cap weighted index and holds 25 US-listed semiconductor companies. TSMC and Nvidia are its top holdings.

The SPDR S&P Semiconductor ETF XSD is an equal weighted ETF. It is the best performing chip ETF over the past year, with a gain of over 97%.

To learn more about these ETFs, please visit Zacks ETF Center. Make sure to be on the lookout for the next edition of ETF Spotlight! If you have any comments or questions, please email podcast@zacks.com.

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Disclosure: I own SOXX and XSD the ETF Investor portfolio.

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Intel Corporation (INTC) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
Advanced Micro Devices, Inc. (AMD) : Free Stock Analysis Report
Broadcom Inc. (AVGO) : Free Stock Analysis Report
Taiwan Semiconductor Manufacturing Company Ltd. (TSM) : Free Stock Analysis Report
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