Macro Research Semiconductors: Maintain 2.5 Stars “ | FSMOne SG - Research Highlights

Macro Research

Semiconductors: Maintain 2.5 Stars “Neutral” as we await a better entry point

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• After an incredible rally over 2020 and 2021, semiconductor stocks have fallen by close to -22% year-to-date, underperforming the broader S&P 500 Index.

• While most chipmakers have reported strong earnings, many have guided for a slowdown in earnings growth and are planning to reduce their capex spending after observing a reduction in demand.

• With sales growth falling and lead times levelling off, the chip industry is likely to be in the early stages of a down cycle.

• Future down cycles are likely to be milder than those in the past as there are now numerous semiconductor applications than before.

• While we have decided to maintain a 2.5 Stars “Neutral” rating for the semiconductor industry for the time being, our long-term view on the industry remains overwhelmingly positive.

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: VanEck Vectors Semiconductor ETF (NASDAQ:SMH)