Semiconductor Stocks

About Semiconductor Stocks

Semis are the most cyclical business in technology and get priced, over and over, as though the cycle has finally been repealed. The long-run returns have been spectacular and the drawdowns along the way have repeatedly run to a third or more. Both of those keep being true and neither cancels the other.

What you own inside the group varies enormously. Fabless designers own no factories and carry high margins on designs somebody else manufactures. Foundries carry the factories instead, which means capital committed years ahead of the demand it serves. Equipment makers sell into those capital budgets, so they swing harder than the chips do. Memory is the roughest of the lot, a commodity that has repeatedly sold below what it costs to make.

The risk worth naming is concentration. A large share of the group's value now rests on datacenter buildout from a handful of buyers, which makes the sector far less diversified than its ticker count suggests. Owning the index here is closer to owning one theme than most people realize.

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