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An Introduction

There are 6 sub-segments in the AI hardware (semiconductor/computer chip/wafer) segment and they are tracked below as to their performances in August in 6 similarly focused model portfolios along with their constituents and the primary reasons contributing to their price changes.

The Semiconductor Value Chain

The first 4 stages involved in the exclusive production and distribution of semiconductors are referred to as the semiconductor value chain and below is how each stage (segment) performed in August, the constituents in each, and the primary catalyst(s) that contributed to the price change:

1. The Pure-Play EDA Software Chip Design Model Portfolio: DOWN 7.2% in August

• Focus: design of complex semiconductor chips using sophisticated electronic design automation (EDA) software.
• Constituents: Cadence Design Systems (CDNS); and Synopsys (SNPS).
• Primary Reason(s) for August Price Change: 
  • Both Synopsys and Cadence posted strong Q2 results, but their full-year guidance came in below expectations which triggered sell-offs as investors had priced in aggressive growth due to AI and chip design demand.

2. The Pure-Play Semiconductor Supplier Model Portfolio: UP 1.7% in August

• Focus: provide essential equipment for manufacturing chips such as lithography machines, etching, test and packaging equipment, automation and inspection systems and production materials such as chemicals, gases, wafers and packaging.
• Constituents: Applied Materials (AMAT); ASML Holding (ASML); Entegris (ENTG);  KLAC Corp. (KLAC); and Lam Research (LRCX).
• Primary Reason(s) for August Price Change: 
  • ​​​​​​​Equipment and materials suppliers benefited directly from new fab construction and tooling orders.
  • In addition, hyperscalers like Amazon, Microsoft, and Meta continued record-breaking capital expenditures to build AI data centers which require cutting-edge chips, which in turn demand EUV lithography, advanced etch and deposition tools, and ultra-pure materials that are supplied by ​​​​​​​equipment and materials suppliers.

3. The Pure-Play Semiconductor Foundries Model Portfolio: DOWN 0.6% in August

• Focus: factories (called foundries in semiconductor jargon) concentrate all their efforts in the manufacture of chips based on the designs provided by other semiconductor companies.
• Constituents: GlobalFoundries (GFS); Taiwan Semiconductor (TSM); Tower Semiconductor  (TSEM); and United Microelectronics   (UMC).
• Primary Reason(s) for August Price Change: 
  • ​​​​​​​The expiration of a temporary U.S.–China semiconductor truce raised fears of renewed export controls, and this added risk to foundries operating in, or selling to China, dampening investor sentiment.

4. The Pure-Play Outsourced Semiconductor Assembly and Test (OSAT) Model Portfolio: UP 6.4% in August

• Focus: assemble chips into finished semiconductor components, tests for defects and do the very specialized packaging of the chips for shipping.
• Constituents: Amkor Technology (AMKR) and ASE Technology (ASX).
• Primary Reason(s) for July Price Change: 
  • The AI boom caused many foundries to run at near capacity necessitating many fabless companies to outsource much of their backend work to OSATs causing i​​​​​​​nvestors to rotate into OSATs.

Summary

On average the 4 value chain segments were UP 0.4% in August.

In addition to the value chain segments the following 2 AI hardware segments performed as follows:

5. The Pure-Play Fabless Semiconductor Companies Model Portfolio: UP 6.8% in August

• Focus: manufacturers design and sell hardware devices and semiconductor chips themselves while outsourcing their fabrication (i.e. are fabless) to a specialized manufacturer.
• Constituents: Advanced Micro Devices (AMD);  Broadcom (AVGO); Marvell (MRVL); Monolithic Power   (MPWR);   Nvidia  (NVDA);  and Qualcomm (QCOM).
• Primary Reason(s) for August Price Change: 
  • Investors sought exposure to AI without the capital intensity of manufacturing driving fabless demand and stock prices up.

6. The Integrated Device Manufacturer (IDM) Model Portfolio: UP 9.6% in August

• Focus: companies do everything themselves in house to control the entire production process.
• Constituents: Analog Devices (ADI); Infineon Technologies (IFNNY); Intel Corp. (INTC);  Microchip Technology (MCHP); Micron Technology (MU); NXP Semiconductors (NXPI);  STMicroelectronics (STM); and Texas Instruments (TXN).
• Primary Reason(s) for July Price Change: 
  • ​​​​​​​The U.S. government fast-tracked CHIPS Act funding, injecting billions into domestic semiconductor manufacturing boosting investor confidence in long-term growth.

Summary

On average, the above two segments were UP 7.8% in August.

Conclusion

The 27 constituents in the above 6 Model AI Hardware Stock Portfolios were UP 3.1% in August, on average. In comparison, the tradable iShares Semiconductor ETF (SOXX), with 35 constituents, was UP 2.2% in August.