LEADING: Semis have continued to soar, leading all industries up, as in 2023. US chip stocks are up 10% this year, led by NVIDIA’s 20% surge. Spreading AI adoption is just the icing on the cake of a recovering chips industry. From AI dominating the CES trade show. To Hewlett’ (HPE) $14 billion buy of Juniper (JNPR). And retail investors keen to buy more AI stocks. This adds to a recovering smartphone market and to the clearing of a post-pandemic inventory glut. Industry forecasts are for rebounding 13% sales growth this year, with foundry TSMC (TSM) seeing up to 25%. The industry valuation premium is high, but sustainable if earnings can keep rebounding.
SECTOR: Semis have seen their valuation hugely rerate. To 26x forward price/earnings, a third above the S&P 500 and 40% over its 10-year average. But the premium has eased from a 2023 peak as earnings growth started to catch up. Semis growth has risen 50% the past year vs the S&P 500’s 2%. This growth-led recovery puts a focus on Q4 earnings results and guidance. The first test is Intel (INTC), the 4th largest semi, this Wednesday, with est. revenues swinging to 8% growth. But NVDA is the big growth driver and doesn’t report until Feb. 21st. With sales seen at $20 billion vs just $6 billion a year ago. Semis are 8% the US index, and quarter the tech sector.
GLOBAL: Global semiconductor sales are on the rebound (see chart). Up 5% in November for the first time since the pandemic boom hangover, and annualising sales of $580 billion. China is 30% of those and seeing the strongest 8% growth, followed by the US and rest of Asia. Whilst Europe and Japan are smallest and the growth laggards. Shipments are forecast up 13% this year, by the Semiconductor Industry Association (SIA). Logic chips are the largest sales segment, at a third, and set for 10% growth, helped by rising AI demand for GPU’s. But it’s the second largest memory segment, at 18% of sales, that is forecast to surge most, up over 40%.
All data, figures & charts are valid as of 23/01/2024.