Global COVID-19 shutdowns affected everything from energy costs… the global supply chain… manufacturing… shipping times… whether or not you could find toilet paper at your local grocer…
And with the rapid rise of remote work at the beginning of the pandemic, personal computer (PC) sales also saw a huge boost.
Three years later with much of the world back in the office combined with record inflation and recession fears, PC sales are taking a huge hit.
Even Apple Inc. (AAPL) is feeling the drop in demand. It announced on Monday that its PC shipments declined 40% in the first quarter 2023. AAPL shares fell 1.6% in the wake of the news.
In the wake of Apple’s PC announcement, semiconductor stocks Micron Technology Inc. (MU) and Western Digital Corp. (WDC) shot higher on Monday and have been able to maintain their gains, as I write this Thursday morning.
In today’s Market 360, we’re going to discuss the recent run-up on Micron and Western Digital, my outlook on the semiconductor market… and I’ll share which company I think will come out on top.
Chips Are Still in Short Supply
One of the biggest catalysts of the semiconductor shortage was the COVID-19 pandemic. When the world went into lockdown, factories across the globe shut their doors. And even once things were back up and running, shipping delays and massive backlog have affected everything from the auto industry to electronics.
Since then, there have been many efforts to bring chip manufacturing back to the states. In August of 2022, President Biden signed the CHIPS and Science Act – better known as the CHIPS Act – which allocates $280 billion to different parts of the semiconductor industry. Congress has set aside $52.7 billion for semiconductor research, which includes $39 billion for domestic manufacturing.
As a result, a number of semiconductor companies have started building new factories in the U.S. – including chip giant Taiwan Semiconductor Manufacturing Company Ltd. (TSM), which has plans to open two plants in Arizona, one in 2024 and the other in 2026.
Short supply and the extra drive to produce more chips will be very good for chip companies. That’s why last week when Samsung announced plans to cut its memory chip output “by a meaningful level,” competitors Micron and Western Digital rallied. On Monday, MU shares and WDC shares posted gains of 8% and 8.2%, respectively.
That begs the question, is it time to jump in on these chip companies today?
While I am bullish on the semiconductor market, Micron and Western Digital are not on my Buy List.
My Portfolio Grader system currently lists both companies as a sell:
While both companies have benefited from strength this week, long-time subscribers know my favorite semiconductor play is still NVIDIA Corporation (NVDA).
One Chip Company to Rule Them All
The Lord of the Rings pun is intended, but on a more serious note, NVIDIA really controls the semiconductor game. NVIDIA is a leading computer graphics company, making graphic processing units (GPUs) for consumers and businesses. From video games to professional visualization, datacenter and automotive applications, NVIDIA’s graphics cards enhance the processing capability of its users’ computers.
The company has been in the computer graphics business for more than two decades – it invented the GPU in 1999 – so it is a well-established player. To date, NVIDIA owns more than 11,000 patents relating to computer graphics, the largest portfolio of its kind.
On Wednesday, the company announced the launch of its new graphics card, the GeForce RTX 4070. This highly anticipated release will give video game players a higher-quality visual experience.
The fact is, while NVIDIA got its start as a graphics card company that catered to video game enthusiasts,, it turns out that its GPUs have a wide range of powerful applications. Graphics cards can be used to aid computers in applications like financial modeling, oil and gas exploration, virtual reality and even in self-driving cars.
And NVIDIA isn’t just the best chip company, it’s the best artificial intelligence (AI) company, too.
In particular, its AI chips will boom under 5G. The world’s leading telecommunications companies are turning to NVIDIA’s technology to build software to increase memory and process data at faster speeds. Their AI chips will be embedded throughout Verizon Communication Inc.’s (VZN) 5G network and will also be used in cutting-edge tech like cloud-based virtual reality, smart cities, connected drones and autonomous vehicles.
The company has taken steps to fine-tune its business to the current environment, as it adjusted inventory levels and introduced new products.
NVDA stock was upgraded to a “Buy” in February of this year in my Portfolio Grader system. And year-to-date, the company is up 86%.
If you’re looking to invest in the semiconductor space, NVIDIA is a great company to start with – but it’s not the only semiconductor stock that’s poised to do well in the current environment. There are several other semiconductor stocks that are uniquely positioned to prosper in their respective corners of the market and are backed by superior earnings and sales growth.
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below: