It’s around this time of year that kids, nephews, nieces and grandchildren launch into exploratory talks of holiday gifts. Well, here’s a tip for you ahead of Christmas 2021: don’t mention anything about video game consoles, and if the kids do, you’d better divert to something even flashier to distract them. Why? Among hundreds of other products, the supply of gaming devices will be short since the manufacturers are out of chips.
The global semiconductor shortage began in 2018 as one of the knock-on effects of the US-China trade war, only to be exacerbated further by the rise of 5G and the need for infrastructure. The shortage was then escalated in 2020 due to the COVID-19 pandemic. With the demand continuing to outpace supply, analysts now expect the shortage to last until 2023.
Over 100 industries are currently affected by the chip shortage, but four chip-heavy sectors were hit particularly hard: automotive, consumer electronics, appliances and LED lighting. As a result, many manufacturers have had to halt or cut back their production temporarily.
The ‘chipageddon’ – as insiders call it – directly affects (lost) sales, (extended) waiting times for new purchases, (limited) supply and (higher) pricing.
In the midst of every crisis lies great opportunity
Heavily chip-reliant companies that can’t easily raise prices will be among the losers. The same goes for chipmakers who cannot invest in additional semiconductor equipment and struggle to meet demand.
But, are there any winners? A lot of chip stocks are performing well despite the shortage, mostly those outgrowing their competitors. Furthermore, chip-buying companies which can raise prices to compensate for lost sales may mitigate the effect. The biggest winners are likely to be the most commodity-like chipmakers and, obviously, the semiconductor equipment manufacturers.
Nvidia Corp. (NVDA.O: NAS) is a leader in processors for personal computers, workstations and mobile electronic devices. Nvidia is outgrowing its peers, thanks in part to its data centre business. In 2021, Nvidia stock is on fire. By 2 November, the stock had returned 102% and jumped 23.4% in October.
ASML Holding NV (ASML: AMS) is the world’s third-largest semiconductor equipment supplier. It’s also the only maker of extreme ultraviolet lithography technology used to print advanced chips. ASML stock trades at a lofty 45 times earnings. The chipmaker’s customers expand capacity to meet demand, a bullish near-term catalyst for ASML.
Advanced Micro Devices Inc (AMD.O: NAS) is a microprocessor and graphics semiconductor company. Its shares have been up more than 1,700% in the past five years. AMD will likely continue to gain share from its competitor Intel in the central processing unit data centre market and is overall a strong performer in the industry. On average, AMD’s stocks score higher than 51% of the stock market.
You can always speculate on the future movements of the chip stocks by trading them as CFDs. Check out our product page to find all the mentioned companies and more!