Key takeaways
- U.S. trade policy with China has negatively impacted many semiconductor stocks in 2022, but not all companies have been impacted equally.
- Take a snapshot look at INTC, TSM, QCOM, MU, AVGO, NVDA and Q.ai’s Global Microchip Shortage Kit.
- Despite the 2022 market woes, the chips produced by semiconductor companies are embedded in modern life. This specific tech sector could help your portfolio achieve long-term growth.
If you’ve ever seen the term ‘semiconductor’ used in conjunction with Silicon Valley, there’s a good reason why. Semiconductors control the flow of electricity between conductors and nonconductors, thus the name ‘semiconductor.’ Semiconductors can include elements like germanium and – wait for it – silicon.
Semiconductor technology enables the creation of microchips, which power our computers, phones, cryptocurrencies, metaverse explorations and even modern vehicles. It’s a sector you don’t want to leave out of your portfolio, even if the industry as a whole has suffered due to U.S. trade policy over the past year.
Intel(INTC)
Intel was the very first company to make central processing units (CPUs). But in recent years, the demand for CPUs has ebbed substantially. Intel is preparing for a pivot into graphic processing units (GPUs), but in the meantime it has announced massive layoffs to right their financial ship.
Intel’s 2021 net income was $19.87 billion, following a downward trend that’s been happening since 2018 when the company’s net income was $21.05 billion. Intel just beat out its Q3 revenue projections, reporting $15.3 billion over the $15.25 estimated. They did fall short of expected earnings per share, delivering $0.25 per versus an expected $0.32.
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While Intel’s recent problems surrounding CPU sales are cause for concern, the company is in the midst of shifting its focus to higher-demand products. Intel remains the largest company in this space, and if it can successfully implement its plans, it could plausibly get itself back on an upward trajectory.
Taiwan Semiconductor Manufacturing Company (TSMC)
In the 1970s, the Taiwanese government decided to invest in a new industry: semiconductors. It contracted with companies on the R&D side, and eventually invested to help establish foundries like Taiwan Semiconductor Manufacturing Company (TSMC). Original investors in the company included Philips, the Taiwanese government and other investors, with the government owning a stake of less than 50%.
Today, TSMC is the largest company in the nation, with a net income of about $18.72 billion in 2021. Net income has been on an upward trend since 2019 (when it was $10.83 billion) after dropping slightly from $11.02 billion in 2018.
Just a couple of TSMC’s many customers include Apple and Nvidia. For some of the products these companies produce, TSMC is the only one capable of producing the appropriate chips. Because the company focuses only on manufacturing chips and doesn't have a need to invest in its own R&D, it has been able to build an unparalleled infrastructure.
While TSMC is a strong company, recent trade rules implemented by the Biden Administration – which negatively impact Taiwan’s ability to export many higher-end chips to China – have contributed to the stock’s tumble in recent months. It has declined more than 50% year to date at close of business on Friday, November 4 2022.
Qualcomm (QCOM)
Qualcomm – short for Quality Communications – is an American company which was founded back in 1985. The company’s main claims to fame are in the cellular communication space, namely the technology behind CDMA, 4G LTE and 5G. However, Qualcomm also produces semiconductors and other technology that reaches into other sectors, like the automotive space, AI and VR technologies.
Qualcomm’s net income has been growing since 2018 when it was operating at a net loss of $4.96 billion. This was followed by a much stronger year in 2019 when the company’s net income was $4.37 billion. In 2020, net income was $5.2 billion, and the company’s most recent 2021 numbers showed a net income of $9.04 billion.
Qualcomm has faced some of the same issues as TSMC over the past year with their business being impacted by U.S. trade relations with China. While its financial goals have fallen short of projections and QCOM stock has suffered in 2022 because of these industry-wide issues, the company has continued with impressive sales numbers throughout the year. Even with the drop in stock price since January, it’s still trading well above 2020 levels.
Micron Technology (MU)
Micron Technology is an American company that specializes in memory and storage chips. The memory market has been flooded with supply recently, driving down both the price of memory chips and the value of MU stock. As of November 4, 2022, MU is trading for $56.16 — up from a recent low of $48.88 at the end of September.
Micron Technology’s net income has been on a roller coaster ride since 2017 — and just like a roller coaster, it began and ended in pretty much the same place. In 2017, net income was $5.09 billion before soaring up to $14.14 billion in 2018. There was a decline over the next two years – down to $6.31 billion in 2019 and $2.69 billion in 2020. In 2021, net income was back up to $5.86 billion.
Despite the company’s financial woes, it hasn’t been as heavily affected by U.S. trade regulations over the past year as it does not do as much business in China as some of the other large semiconductor companies. Micron is hoping the current market conditions won’t last forever and has optimistically invested $100 billion in a new fabrication plant in central New York — but only after cutting capital expenditure by 30% for the new fiscal year.
Broadcom (AVGO)
Broadcom is yet another American company in this industry. It specializes in both semiconductor and software technology. In May 2022, Broadcom began acquiring VMware, an IT infrastructure company.
Broadcom is another company that has had huge swings in net revenue since 2017, when it was only $1.7 billion. In 2018, it skyrocketed to $12.28 billion before falling to $2.74 billion in 2019. In 2020, net income was $2.96 billion before it grew to $6.74 billion in 2021.
Some of this back and forth was due to failed mergers in 2018 and 2019. Those past failures are causing some concern for VMware customers and partners during the current acquisition. Employees are also concerned, leaving the company in large numbers.
Many analysts worry that the companies’ core business and products are too far apart for the merger to end successfully. Broadcom has historically focused on hardware and software while VMware’s clients are looking for IT infrastructure services.
As of November 4, 2022, AVGO was $465.30 per share – it was hovering between $280 and $290 in October of 2019. Watching what the stock does as the merger progresses in this current economy will be interesting to say the least.
NVIDIA (NVDA)
Nvidia is another American company, one that makes a lot of its money from chips that support cryptocurrencies and the metaverse. Its original claim to fame was the invention of the GPU, but there are many arms of its business, including one that partners with manufacturers of self-driving cars.
Nvidia had a strong year in 2021 with a net income of $9.75 billion, up from $4.33 billion in 2020. Its net income for 2019 was just $2.77 billion, down from $4.14 billion in 2018.
While Nvidia’s net income was up in 2021, NVDA stock has reacted negatively to market conditions in 2022. In fact, it’s down 29.85% YTD. On top of the crypto crash, metaverse interest has waned compared to years past. Nvidia has also been negatively affected by increased trade tensions between the U.S. and China.
In the midst of the mess, Nvidia has continued its attempts to diversify, investing more heavily in the automotive sector of its business. The company does not have a lot of time left to bounce back in 2022, but long-term its prospects could get rosier again should its automotive efforts prove fruitful – or if interest in crypto and the metaverse recover.
Managing Fluctuations in Semiconductor Stocks
As demand in specific technology industries waxes and wanes, the stock prices of companies in the semiconductor space will oscillate as well. Until tensions between the U.S. and China calm, many of these companies will continue to feel downward pressure.
One way to hedge for stock market fluctuations and the impacts of government regulation is by using an Investment Kit from Q.ai. These Kits use the power of AI to help you invest in a balance of tech giants and up-and-coming companies in the semiconductor industry. This is an ideal way to limit your exposure but benefit from the ongoing high prices in the industry, which far outweigh any reduction in production or sales volume.
Download Q.ai today for access to AI-powered investment strategies. When you deposit $100, we’ll add an additional $100 to your account.
