Two Reasons to Keep Buying Chip Stocks

Lou Basenese

Thursday, August 26, 2021

Ever since the start of the pandemic, I’ve been banging the table for you to buy semiconductor stocks.

At this point, I look really smart... and you should be really wealthy.

As you can see in the chart below, the iShares Semiconductor ETF (SOXX) surged 162% off its March 2020 low.

(click image to enlarge)

The good news is that, even if you didn’t follow my lead and missed out on the first leg of profits, it’s not too late.

That’s right. This trend is far from over.

Here are the two major reasons why semiconductor stocks should keep surging in the months (and years) ahead.

It’s All About Growth...

For the first time in history, semiconductor sales will eclipse the $500 billion mark, according to the latest research from IC Insights.

Why are we seeing such a sky-high level? Because almost every single segment of the semiconductor market is firing on all cylinders.

In fact, digging into the data reveals a “very rare event,” per IC Insights. Not only will 32 of the 33 major chip-market categories enjoy an increase in sales, but a staggering 29 categories (that’s 88% of them) will enjoy double-digit sales growth.

Against such a strong demand backdrop, it’s impossible for semiconductor stocks to do anything but keep climbing.

After all, more sales means more profits. And as I’ve told you before, stock prices ultimately follow earnings.

Semiconductor stocks won’t be the exception. Bet on it!

But that’s not the only reason for my extreme bullishness...

… And Takeover Potential

A recent headline from consulting firm Accenture perfectly sums up another long-term market force working in favor of semiconductor stocks:

“A massive wave of consolidation has swept across the semiconductor industry in the past decade, driven by growing demand for technology and leading to escalating valuations.”

And if we look at the raw data, the trend is crystal clear.

After a decade and a half of steady volume, chip sector deal-making kicked into overdrive starting in 2015.

(click image to enlarge)

This intensifying pace of merger and acquisition (M&A) makes it “buy-or-be-sold” time — because, as I’ve mentioned countless times before, “Deal-making always begets more deal-making.”

Why is that “always” the case? Well, because deal-making is the only way to stay competitive in a consolidating industry.

Consider: If your top competitor makes an acquisition that instantly doubles its product portfolio and/or market share, there’s no way to catch up without making an acquisition of your own. Period.

Of course, in the chip sector, there are additional factors driving the urge to merge...

Like unparalleled growth potential.

After all, with billions more devices, systems, and networks being created and connected in our increasingly digital world, more and more chips are required.

At the same time, device makers want to simplify their supply chains by purchasing system solutions, not just countless discrete chips from multiple parties.

In turn, this is compelling chip companies to acquire complementary technologies so they can provide those system solutions.

Or as the CEO of leading European chip maker, Dialog Semiconductor Plc (DLGNF), observed in recent years, “Customers more and more want to have fewer suppliers, more value, and pieces that work together.”

Add in the fact that demand for technology — and in turn, chips — is only going to keep growing as part of the Era of Tech-biquity that I’ve been talking about, and it’s virtually guaranteed that the pace of chip sector M&A is going to continue unabated.

Bottom line: Make sure you’re properly positioned to profit from the growth and M&A boom by scooping up shares of under-the-radar, small- and micro-cap semiconductor companies with unique, patented technologies…

Before it’s too late.



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Ahead of the tape,
Lou Basenese
Lou Basenese


Tags: M&A Semiconductors

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