Semiconductors, also referred to as semis or chips, are used in an extensive range of products in computing, telecommunications, gaming, transportation, military systems, clean energy and healthcare. They are the brains of modern electronics and the drivers of technological innovation. Over the past decade, semis have also been the drivers of the broader technology sector’s upside and the beneficiaries of evolving sources of demand. As future technologies arise, such as the cloud, the internet of things (IoT), artificial intelligence (AI), virtual reality (VR), autonomous driving, wearables, smart technology, drones and advanced wireless networks (5G), we are bullish on the future of the semiconductor industry.
In a risk-off market, indiscriminate selling often fuels share price volatility. Semis were among the stocks hit hardest during the COVID-19 selloff this past March; however, most chip stocks have made a resilient comeback. This is potentially good news for semiconductor stocks and investors seeking outsized returns in what many anticipate to be a challenging and unpredictable market over the near-term.
The global pandemic and ensuing stay-at-home trends are boosting the demand and adoption of products that use chips. These chip makers develop and manufacture semiconductor chips that define the graphic experience of the player and are crucial to the gameplay experience.
Global Semiconductor Industry Revenue Growth
During periods of high demand, upturns occur and tight supply, or even shortages, lead to higher prices and revenue growth. According to the World Semiconductor Trade Statistics, it is expected that worldwide semiconductor sales will grow by 3.3% this year, totaling $426 billion dollars, and by 6.2% in 2021.
This dynamic industry is expected to continue to grow and innovate as technology becomes more and more pervasive in everyday life. Investors seeking to benefit from this technological acceleration and proliferation can gain exposure to this space through semiconductor exchange-traded funds (ETFs). ETFs can help reduce individual stock risk by providing broad access to a basket of companies, but investors should pay attention to how these baskets are constructed.
MVIS US Listed Semiconductor 25 Index
10/31/19-10/31/20
Michael Cohick joined VanEck in 2011. He serves as a product manager responsible for VanEck Vectors non-taxable fixed income and industry equity exchange-traded funds. Prior to joining VanEck, he worked at ING Investment Management. Mr. Cohick earned an MS from Columbia University and a BA from Goucher College.
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