The global semiconductor industry, with a capitalization exceeding 4 billion dollarss, has established itself as the fundamental pillar of the technology sector. The industry of these microcomponents, produced from pure elements such as silicon, germanium or gallium, is experiencing exponential growth driven by the metals industry.to artificial intelligence (AI) and global economic competition.
The semiconductor industry is characterized by high specialization, an integrated value chain and its geopolitical importance. It is composed of the design, manufacturing and assembly segments, led by integrated manufacturers (IDMs) such as Samsung or Intel; fabulous design companies like AMD or Nvidia; and manufacturers (foundries) such as TSMC or UMC.
The importance of this sector means that it is influenced by geopolitical factors. With economic and military implications, Semiconductors are a key element of the rivalry between United States and Chinagiving rise to the “Chip War”.
For example, in 2023 the United States banned its companies from selling semiconductors to China, calling on its allies to follow the same steps. China, for its part, responded by limiting exports of gallium and germanium, which are needed to produce semiconductors with critical use cases in missile defense systems, satellites and radars, among others. It is important to underline this China produces 60% of the world’s germanium and 80% of gallium.
But regardless of geopolitical tensions, the semiconductor industry is expected to achieve this goal one trillion dollars by 2030. This growth in semiconductor demand is estimated to be primarily driven by a few key industries. Among these we can mention the automotive sector, with the growth of electric vehicles; data automation and storage systems, with the advent of cloud computing and the push of artificial intelligence; and wireless technologies, with the development of IoT and 5G.
Currently, stock prices in the semiconductor sector have undergone a significant correction, mainly due to profit-taking and geopolitical tensions. This represents a strategic opportunity, providing an attractive entry price for investors.
In 2024, semiconductor industry revenues are expected to grow more than 25%, with profits increasing more than 50%. This is based on the strong demand for artificial intelligence (AI) during this period, supported by the adoption of these technologies by companies. Additionally, stabilizing demand trends for computers, IoT devices and smartphones adds further momentum.
In terms of valuation, the sector today has a forward P/E of 18x, lower than the tech sector average of 24x. This recent price drop is considered an overcorrection by most analysts.
This environment requires investors to assume the existence of short-term geopolitical risks. But those who decide to take this risk and invest in this interesting sector can adopt two strategies. The most conservative option would be to invest in a Thematic ETFs, with positions across the entire industry value chain, for comprehensive exposure. While a more aggressive option would be to take positions in a strategic segment, within the ones mentioned above, to maximize return potential.
Whatever strategy is adopted, one thing is certain: investments in the semiconductor industry, despite the risks involved, are fundamental to technological development and very profitable in the long term.
Source: Clarin
