Semiconductors are playing a key role as new technologies like 5G and Artificial Intelligence continue to take shape. Consequently, due to this role, semiconductor stocks are emerging as an exciting option for many investors.
Data gathered by Stock Apps indicates that as of September 30, 2020, the average ROI of five best performing semiconductor stocks stands at 27.2% on a year-to-date (YTD) basis. The research overviewed the returns of ten companies where Lattice Semiconductor Corporation has the highest ROI at 47.4%. Texas Instruments Incorporated capped the group of companies with positive ROI at 9.2%.
Elsewhere, from the sampled companies, Tower Semiconductor stocks have the worst ROI at -25.15%. NXP Semiconductors N.V. stocks are also among the worst-performing with an ROI of -4.08%.
Return on Investment (ROI) is a performance metric used to evaluate the efficiency of an investment or sometimes compare the efficiency of several different investments. The measure attempts to directly measure the amount of return on a particular investment, relative to the investment value. Notably, the semiconductor stocks are among the most competitive due to the industry’s nature.
Companies that stand out in the sector are characterized by creating smaller, faster, and cheaper chips. Smaller chips mean that they can handle more power. Additionally, the more transistors on a chip, the faster it works. This creates fierce competition in the industry as companies attempt to be at the forefront of integrating emerging technologies.
Semiconductor stocks to spear with the uptake of new technologies
Amid the coronavirus pandemic, the semiconductor stocks were among the least impacted similar to other technology counterparts. As the pandemic hit other parts of the world, the Chinese economy began reopening with a rebound in smartphone sales.
The semiconductors’ stocks are expected to keep soaring as the world aggressively continues to shift towards the highly publicized 5G network. There has been an increasing demand for high speed hence the accelerated deployment of 5G technology. The technology promises a higher speed than the current 4G due to low latency. The industry stocks are now emerging as a perfect portfolio diversifier. Currently, many manufacturers are focusing on the mass production of 5G phones. With the production, 4G phones are expected to phase out giving prominence to semiconductor companies.
Other factors expected to drive the semiconductor stocks include the growing demand for hardware that facilitates the work-from-home capabilities. Additionally, there is an increase in the demand for cloud storage with data center operators striving to enhance their capacities to accommodate the demand spike for cloud services. This trend is expected to boost the chipmaker industry.
Semiconductor stocks performance amid Covid-19, trade war
It is worth noting that some of the highlighted semiconductors stocks were impacted by the ongoing U.S-China trade wars. The trade tussle gradually eroded confidence in the market causing extreme caution especially on the side of chip buyers globally. Coupled with the coronavirus pandemic, some stocks were hard hit. However, the focus on new technologies like 5G has been seen as the perfect rescue plan for the stocks.
Unlike other industries, investing in semiconductor stocks comes with several challenges. Notably, the industry is highly cyclical. Most players in the sector usually rely on the boom and bust cycles based on the underlying demand for chip-based products. Currently, there is an increasing demand for the chips with the uptake of 5G and the Internet of Things.
Usually, with high demand, profits soar. However, when the demand drops, most chip makers end up making losses. It is worth mentioning that demand in the industry depends on tracking end-market demand for devices like personal computers, cell phones, and other electronic equipment.
Even as the semiconductor industry looks forward to a bright future, there is still a dilemma. It is yet to be determined if semiconductor companies’ technology drives the market or the market that drives the technology. This is key for investors to recognize that both have validity for the semiconductor industry.
Overall, the semiconductor stocks might be having a good run, the technology trends are not expected to slow down anytime soon. The possibility of a recession can delay the semiconductor sector, macroeconomic conditions will probably act as a major factor.