For all the talk — valid though it may be — about global supply chain woes crimping the semiconductor industry, that negativity isn’t reflected in share prices.
Just look at the VanEck Vectors Semiconductor ETF (SMH). SMH, one of the bellwether semiconductor exchange traded funds, is up a stellar 37.67%. That’s about 900 basis points ahead of the S&P 500 Technology Index.
While it’s clear that SMH is standing tall in the face of supply chain issues and it’s benefiting from still elevated-demand for chips across an array of industries, there are other lingering catalysts for SMH. Those include substantial need for semiconductors in the renewable energy space. That gives chip stocks and ETFs the look of environmental, social, and governance (ESG) assets at just the right time.
“Investors are increasingly putting their money into so-called ESG assets, which take environmental, social and governance criteria into account. Data from Morningstar showed that $15.7 billion in flowed into U.S. sustainable funds during the third quarter of 2021, with assets in these funds totaling more than $330 billion as of September,” reports Zavier Ong for CNBC.
CNBC notes that Goldman Sachs recently published research highlighting the intersection of the clean technology revolution and the semiconductor industry. The bank adds that some major chip makers, including some SMH components, could see allocations in ESG funds because these semiconductor names have significant exposure to trends such as energy storage and efficiency, electric vehicles, and broader renewable energy concepts.
A prime example of one such name is Taiwan Semiconductor (NYSE:TSM), operator of the world’s premier chip foundry.
“We believe TSMC is at the center of secular growth themes across multiple industries such as digitalization, proliferation of smart technologies and industrial automation, all of which contribute towards better energy efficiency and the discovery of technological solutions that contribute towards climate change mitigation,” said Goldman.
That’s good news for SMH investors because Taiwan Semiconductor is the ETF’s largest holding at a weight of 14.07%. Dutch chip giant ASML, which accounts for 6.59% of SMH’s roster, is another semiconductor name Goldman highlights as having renewable energy exposure.
“Further price upside for the company’s EUV equipment should translate into better gross margin profitability into 2022, the analysts added,” CNBC reports, citing Goldman Sachs.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.