The semiconductor space remained largely unaffected by the broad market sell-off seen in early February. This is because the semiconductor industry is clearly leading the broad technology space this year on encouraging fundamentals, solid corporate earnings, strong outlook and investors’ continued appreciation of value-centric traditional stocks. The rally has strengthened courtesy of a series of consolidation, which pushed several chip stocks and ETFs to new highs.
Below we discuss some strong reasons for investing in semiconductor ETFs.
Semiconductorsare the most important driver of overall technology growth as these are used in cars, electronic gadgets to planes and weapons. Robust demand for memory chips and other semiconductor products owing to the rapid adoption of cloud, Internet of Things, autonomous cars, gaming, wearables, VR headsets, drones, virtual reality devices, artificial intelligence, cryptocurrencies, and other advanced information technologies are fueling huge growth in the space.
Additionally, the deployment of 5G (fifth-generation) technology – the next wireless revolution – will likely create further growth opportunities.
The twin tailwinds of Trump’s tax reform plan and a rising interest rate scenario are also pushing chip stocks higher. This is because companies like Qualcomm (QCOM – Free Report) , Intel (INTC – Free Report) , and NVIDIA (NVDA – Free Report) hoard huge cash overseas and are poised to benefit the most from the reduced tax rates. Additionally, most of the chipmakers are sitting on a huge cash pile and are in a position to increase shareholder payouts. The cash reserves will ensure that these companies are not plagued by financial trouble in a rising interest rate environment.
Adding to the strength is a pickup in the economy and better job prospects that are giving a solid boost to economically sensitive growth sectors like technology, which typically performs well in a maturing economic cycle.