The VanEck Vectors Semiconductor ETF (SMH) turned in a stellar showing in 2021, surging a jaw-dropping 42.1%.
That feat is going to be hard to repeat this year, but that doesn’t mean investors should be dismissive of semiconductor stocks and exchange traded funds such as SMH. In fact, it’s hard to ignore the fact that despite last year’s scintillating run and speculation that supply issues will finally ease, chip stocks are drawing plenty of praise on Wall Street.
Research firm Euler Hermes recently forecast a 9% increase in global chip sales, indicating that the industry will top $600 billion in revenue for the first time. That outlook implies that it could be a good time to stick with semiconductor stocks and SMH rather than parting ways with those assets. Plus, the demand side of the chip equation is impossible to ignore.
“A months-long semiconductor shortage during the pandemic impacted a wide-range of industries — from automobiles to gaming consoles — as chipmakers struggled to keep up with unprecedented demand as global economic activity bounced back from the Covid crisis,” reports Eustance Huang for CNBC.
The $7.6 billion SMH follows the MVIS US Listed Semiconductor 25 Index and holds 25 stocks, presenting investors with a concentrated lineup that’s right for the current chip environment. As an example of that, Goldman Sachs analyst Toshiya Hari highlights Advanced Micro Devices (NASDAQ:AMD) and Marvell Technology (NASDAQ:MRVL) as two of his preferred chip ideas for this year.
“Similar to the last few years, we expect positive earnings revisions to drive the stock higher as we progress through the year,” the analyst said of AMD.
AMD is on Goldman’s conviction buy list with a price target of $170. The stock is SMH’s fourth-largest holding at a weight of 5.09%. Marvell, which accounts for 3.81% of the SMH roster, is indeed an interesting story in its own right as cloud computing, 5G infrastructure, and demand from the auto world are among the factors that could propel the already-hot stock higher this year.
“With about 80% of revenue rooted in cloud, enterprise, and communications infrastructure, we expect the stock’s valuation premium to hold and for the company to grow revenues and expand profits at a healthy clip into its multiple,” adds Goldman’s Hari.
On Monday, Citi reiterated “buy” ratings on Marvell, Micron Technology (NASDAQ:MU), and Nvidia (NASDAQ:NVDA). Nvidia and Micron combine for over 14% of SMH’s weight.
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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.
