The semiconductor industry has recorded increased demand over the past 12 months with a surge in the utilization of chips in different sectors. However, the industry has faced a shortage amid the demand, but the stocks from the sectors’ key players have been rewarded with positive gains.
According to data compiled by Finbold, the top five selected semiconductor stocks have recorded an average Return On Investment (ROI) of 100.59% between June 28, 2020, and June 28, 2021. NVIDIA Corporation ranks top with a return of 107.87%, followed by the Taiwan Semiconductor Manufacturing Company Limited at 106.87%.
Elsewhere, the top ten selected semiconductor stocks recorded an average ROI of 78.79% between the same period. Among the selected companies, Broadcom ranked in the tenth slot with returns of 50.35%.
Factors driving semiconductor stocks’ positive returns
The returns by the stocks remained significant, considering the semiconductor industry has been hit with a global shortage over the last 12 months. The shortage was mainly a result of the supply chain effects due to the coronavirus pandemic.
However, the stocks have performed better amid the pandemic, reflecting the performance of the general technology sector. Therefore, despite the shortage, it can be assumed that the semiconductor stocks’ performance is guided by the industry’s general role in the technology sector.
For instance, the global shift to the 5G network is crucial for the stocks’ performance. Notably, there is an aggressive shift towards 5G, with the technology promising higher speeds. Moreover, as more manufacturers phase out 4G phones, semiconductors are gaining prominence resulting in a surge in demand.
Additionally, the semiconductor industry is witnessing demand from electric vehicles and their batteries industry. In general, the semiconductor companies have recorded high demand for their products. This has resulted in higher profit margins and capacity utilization that has led to strong financial results.
The positive returns have also resulted from the pandemic, creating a tremendous need for connectivity and conferencing solutions globally. In turn, this has driven demand for both in the cloud for the answers that allow people to collaborate and end-user devices such as personal computers and tablets that heavily depend on the semiconductor industry.
Cyclical nature of semiconductor stocks
The returns also reflect the general cyclical nature of the semiconductor industry. Notably, the stock’s performance has relied on boom and bust cycles based on the underlying demand for chip-based products. Notably, most semiconductor players record a drop in profitability when the demand plunges, impacting the stocks in the long run.
Notably, the semiconductor industry is also experiencing force competitions for the sector with historically high barriers to entry. Most of the companies have a significant amount of research, and they have become appealing to investors.
As the supply chain gets restored, the semiconductor industry is likely to keep rising significantly, with the technology trends appearing not to slow down. Furthermore, continued advancement in the semiconductor industry has the potential to spur further growth in coming months.