Semiconductor stocks are among the primary offenders in this year’s growth/technology equity slump, but some analysts argue that the 2022 slump is creating opportunities in the chip space for long-term investors.
Assuming that forecast proves accurate, exchange traded funds such as the VanEck Vectors Semiconductor ETF (SMH) stand to benefit. The $5.7 billion SMH follows the MVIS US Listed Semiconductor 25 Index and holds 25 stocks.
Amid this year’s bloodletting among technology stocks – one that delivered severe consequences for chip names – some SMH components are trading at attractive valuations while maintaining compelling long-term growth prospects. In a recent report to clients, Cowen analyst Matthew Ramsay highlighted opportunities in the semiconductor arena.
“Macro-driven headwinds are well-documented but are being acutely felt in the PC/gaming market,” he wrote, noting longer-ranging “secular growth vectors… remain intact with current entry points attractive for quality franchises.”
In alphabetical order, he’s constructive on Advanced Micro Devices (NASDAQ: AMD), Lattice Semiconductor (NASDAQ: LSCC), Marvell Technology (NASDAQ: MRVL), Monolithic Power Systems (NASDAQ: MPWR), and Nvidia (NASDAQ: NVDA). Nvidia is SMH’s second-largest component at a weight of 8.18%.
Cowen’s Ramsay has a price target of $180 on that stock and a $100 forecast on rival AMD. AMD accounts for 4.07% of the SMH portfolio. Following AMD’s warning last week that it won’t reach Wall Street estimates for the September quarter, patient investors may be able to get more favorable pricing on SMH as markets work through what be a turbulent earnings season for semiconductor stocks.
“Ramsay said chip stocks are near all-time low valuations after their big drops this year. While macro concerns abound — including a slowdown for computer and smartphones sales, rising inflation, and hawkish central banks— he is bullish long-term on chip demand on the back of the growing end markets in data centers, high-end smartphones, and 5G infrastructure,” reports Tae Kim for Barron’s.
Marvell Technology and Monolithic Power Systems combine for almost 5% of the SMH roster while Lattice Semiconductor isn’t held by the ETF. SMH’s largest holding is chip foundry giant Taiwan Semiconductor (NYSE: TSM), which accounts for 11.23% of the fund’s weight.
SMH is slightly outperforming the widely followed ICE Semiconductor Index on a year-to-date basis.
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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.