Semiconductor stocks have had a stellar run year-to-date
Figure 1: On a total return basis, chipmaker stocks have outpaced the broader market by over 20% year-to-date
The semiconductor industry is on the verge of a recovery
Figure 2: Global semiconductor sales to see positive double digit year-on-year growth by 2Q20
Figure 3: Global semiconductor sales forecasted to increase by roughly 17% year-on-year in 2020
Rising monthly revenue, higher capex and better forward guidance points to an impending recovery
Figure 4: TSMC’s monthly revenue is highly correlated with global semiconductor sales
Figure 5: Based on several indicators, we believe that the industry is on the verge of a recovery
Factors that could derail the recovery
Table 1: SMH constituents do not have significant exposure to Huawei
| Company | Weight (%) | Exposure to Huawei (%) |
| Qorvo | 0.88 | 15 |
| Micron | 4.18 | 13 |
| Taiwan Semiconductor Manufacturing | 9.48 | 6.42 |
| Broadcom | 5.07 | 5.34 |
| Skyworks Solutions | 1.86 | 4.89 |
| Analog Devices | 4.16 | 4.77 |
| Maxim Integrated Products | 2.04 | 4.46 |
| Qualcomm | 7.04 | 2.63 |
| Marvell Technology | 2.08 | 2.59 |
| STMicroelectronics | 1.71 | 2.35 |
| *Weighted average exposure to Huawei | 1.98 | |
Source: Bloomberg, Company Data,
iFAST Compilations *Excluding TSMC |
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25% upside expected by the end of 2020
Figure 6: Share prices of semiconductor companies are closely tied to their earnings.
Table 2: Strong earnings growth expected for 2020 and 2021 as the industry swings into an upcycle
| MVSMHTR Index | 2018 | 2019 | 2020 | 2021 |
| PE Ratio | 16.9 | 19.3 | 13.2 | 11.6 |
| Earnings Growth | 44.80% | -12.50% | 45.90% | 13.70% |
| EPS | 138.3 | 121 | 176.6 | 200.7 |
| Projected Fair Price | - | 2166.3 | 2955.9 | 3162.8 |
| Potential Upside | - | -7.30% | 26.40% | 35.30% |
| Source: Bloomberg, iFAST Estimations | ||||
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