5 Top Picks To Tap Momentum In Semiconductor Space

The semiconductor industry had a rough 2018, with most of the major chipset manufacturing stocks closing in the red. The Philadelphia Semiconductor Index (SOX) was down 2.6%. The disappointing performance can be attributed to a prolonged trade conflict and fear of global demand slowdown, chipset supply glut and crash of cryptocurrency.

However, the semiconductor industry has rebounded impressively in 2019. The Philadelphia Semiconductor Index (SOX) is up 25.8% year to date compared with 14.9% growth of the benchmark S&P 500 Index.

Meanwhile, the VanEck Vectors Semiconductor ETF (SMH) –- the fund that closely tracks companies in the industry –- has advanced 27% this year. Moreover, the tech-heavy Nasdaq Composite index has witnessed a jump of 18.9% in 2019.

Disappointing 2018 for Semiconductor Industry

Chipset industry’s downturn in 2018 was the effect of several negative factors. First, is the trade-related conflict between the United States and China, which commenced in March 2018 and aggravated throughout the year.

Secondly, the fear of global economic slowdown, especially the downturn of the Chinese economy, was a major concern. The IMF has reduced global economic growth forecast for 2019 due to trade war concerns.

Finally, the crash of the cryptocurrency industry in 2018 took a heavy toll on the semiconductor industry. Several chipset manufacturers, especially those which manufacture flash memory were optimistic about the growth potential of cryptocurrency. Consequently, chipset supply glut occurred, resulting in price reduction.

Semiconductor Industry Rebounds in 2019

The semiconductor industry has recovered so far this year buoyed by several positive developments.

Firstly, despite a tepid stock market performance in 2018, all was not bad for the semiconductor industry. On Feb 6, the Semiconductor Industry Association announced that in 2018, more than a trillion chips were shipped globally, for the first time in industry’s history. Sales of chips grew 13.7% year over year to $468.8 billion worldwide in 2018.

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