Don't Miss the Next Trillion-Dollar Mega-Trend

Lou Basenese

Wednesday, June 1, 2022

Back in March, I alerted you to the institutional awakening happening in regards to the indispensable nature of semiconductors for the future of, well, everything.

Or, as investment powerhouse BlackRock wrote at the time — tech, and more specifically, semiconductors, are “the fabric upon which today’s economy is built.”

Indeed!

And now global consulting juggernaut McKinsey is jumping on the bandwagon with us, quantifying the importance of semiconductors…

It is (conservatively) projecting that semiconductors will be “a $1 trillion-dollar industry by the end of the decade, assuming average price increases of about 2 percent a year.”

For perspective, there are only four or five trillion-dollar industries in existence. So it goes without saying, investing in the next one is a mega-trend you don’t want to overlook.

With that in mind, I’m making good on my promise from last week to share the fastest growing — and therefore, the most potentially profitable — segments of the chip industry to focus on.

So let’s get to it…

Stepping on the Accelerator

To be clear, we can’t go wrong investing broadly in the chip sector, as it's expected to expand from a $590 billion market last year to a nearly $1.1 trillion market in 2030.

I challenge you to find a bigger growth opportunity in existence.

As you can see in the chart below, though, drilling down into individual segments reveals that a staggering 70% of growth will come from just three areas: automotive, wireless communications, and computation & data storage.


(click image to enlarge)

The strongest-growing segment promises to be automotive, with an anticipated tripling of demand, fueled by, as McKinsey notes, “... applications such as autonomous driving and e-mobility.”

In more specific terms, we’re talking about:

  • The average chip content in an autonomous vehicle going from about $500 to over $4,000.
  • The total demand for automotive chips soaring from just 8% of global semiconductor sales to as much as 15% by the end of the decade.

So how do we play this undeniable growth trend? Here are three compelling opportunities, including my favorite one:

  • Infineon Technologies AG (IFNNY): Don’t let the company’s listing on the OTC market fool you — it’s anything but a penny stock. Boasting a $40-billion market cap, the German chipmaker is a leading supplier of automotive chips for the biggest European players, including Volkswagen AG (VWAGY). With sales up 29% last year, Infineon now controls nearly 15% market share in the automotive chip market. And counting. With shares trading on the cheap at a nearly 50% discount to its five-year average price-to-earnings (P/E) ratio and an almost 30% discount to its five-year average forward P/E ratio, we’d be hard pressed to find a more compelling and safe way to play the automotive chip boom.
  • Renesas Electronics Corporation (RNECY): Once again, don’t let this company's OTC listing dissuade you from buying it. The $24 billion market cap Japanese company generates over 50% of its sales from the automotive sector. Sales are growing at a healthy double-digit clip. Not to mention the stock is relatively cheap, trading at about a 20% discount to the S&P 500 Index on a P/E ratio basis.

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Ahead of the tape,
Lou Basenese
Lou Basenese

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