Semiconductor sector-related ETFs have been outperforming, with chipmakers among the top performers of the past decade, as adoption of digital devices proliferates.
The semiconductor sector has rallied 377% over the past 10 years, compared to the S&P 500’s 182% increase, CNBC reports.
Cutting-edge chipmakers are the best-performing industry across sectors and regions as more consumers acquire internet-connected devices. Semiconductors now make up some of the most essential products and technologies we use everyday, such as advanced mobile networks, iPhones and the new-generation of artificial intelligence.
“The industry seems to have benefited from bullish investor sentiment given the prospects for emerging technologies” in computing, storage, and enhanced connectivity, Michael Cohick, VanEck’s senior product manager, told CNBC.
Semiconductor companies grow more efficient
Over the past decade, semiconductor companies have grown more efficient, reducing costs and increasing production. Chipmakers learned to streamline production and improve their capacity planning and equipment spending. Meanwhile, chip demand surged as the global economy expanded.
“People took action in the throes of the downturn that left them in a better place structurally,” Bernstein’s Stacy Rasgon told CNBC. “Companies got out of the worst business and they started rationalizing their manufacturing footprints.”
This year’s run has been spectacular, but it has also been an odd one out. Semiconductors surged 57% this year and were on pace for their best year since 2009. However, they generated strong returns despite troubling fundamentals and increasing macro uncertainty in the wake of a protracted trade war between the U.S. and China.
“From a fundamental basis, this is one of the worst years. From a revenue standpoint, we are actually in the biggest semiconductor downturn since the financial crisis today. You’d never know it by looking at the companies, looking at the stocks,” Rasgon added. “The latest cycle is very, very unusual.”
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