The semiconductor sector could be heading towards strength in the long-term horizon after it followed a downtrodden tech sector last year amid rising interest rates and lower profit expectations.
The S&P Semiconductors Select Industry Index is up over 20% so far this year, following the overall tech sector rebound even though inflation appears like it will stick around for most of the year and potentially into the next. That short-term strength could be a harbinger of things to come in the long-term horizon as the global push to rely on computers moves forward.
The semiconductor industry in the U.S. is getting support from the federal government, which plans to wean the country off chip manufacturers outside U.S. borders. One challenging aspect of the semiconductor industry is finding the necessary talent to spur growth.
“A shortage of skilled workers in places such as this Syracuse suburb is posing a major challenge for the Biden administration’s ambitious plan to spur chip manufacturing in the US,” a Wall Street Journal article said.
Nonetheless, the talent shortage doesn’t mean semiconductor companies are thinking twice about expanding. American chip manufacturer Micron Technology is looking to pour billions into harvesting talent for the future.
“Micron MU 4.51%increase; green up pointing triangle Technology Inc. plans to invest $100 billion to open a semiconductor-manufacturing campus here, with construction starting in 2024 and production beginning in the latter half of the decade,” the WSJ article added.
Tripling Leverage on Semiconductors
With these growth prospects ahead, consider a bullish trading slant with the Direxion Daily Semiconductor Bull 3X ETF (SOXL). SOXL seeks daily investment results equal to 300% of the daily performance of the PHLX Semiconductor Sector Index, which measures the performance of domestic companies engaged in the design, distribution, manufacture, and sale of semiconductors.
The industry was flourishing amid the height of the pandemic, but as mentioned, succumbed to the overall tech weakness in 2022. Things could be turning for the better if market analysts’ forecasts prove correct.
“In April 2021, we called for the top of the semiconductor cycle, driven by the combination of sky-high valuation multiples and record lead times, which often compel ‘bad behavior,’ including inventory accumulation, safety stock building, and double ordering. Today, however, we are calling for the bottom in this cycle,” said quantitative trading firm Susquehanna Financial Group in an industry report, specifically referring to companies instrumental in PC, consumer, and handset-related manufacturing.
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