Chips and semiconductors have seen significant growth, but there continues to be a supply and demand imbalance in the industry. When considering exposure to these stocks, investment time horizon and financial planning needs are important factors.
Read the full transcript
AJ, a lot of our clients lately are asking if we should be reducing our exposure to technology, specifically chips and semiconductor fabricators. Are these stocks overpriced or are we just getting going?
Yeah, my gut feeling is that we are just getting started. Objectively, you have a supply and demand imbalance.
You know the demand for high end chips whether it’s you know high performance GPUs for LLM training or advanced CPUs, now memory’s hot. You only have a handful of companies that can do this at scale and at the quality that’s required for some of the hyperscalers to actually implement their projects. And so you have to be careful with the cyclicality of some of these things, especially in memory land. But if you go back and look at Micron or Hynix or something, they’re up 150% in six months, but they’re responding to earnings.
The revenue is growing. If you look at a forward 12-month earnings estimate, Micron’s trading at like 13 or 14 times earnings. So, back to your original question, what do you actually do with these?
A year ago, semiconductors were 5 or 6% of the S&P 500 exposure. Today, it’s something like 25%. So you’re getting a fair amount of exposure just through the broad index funds that you probably already own. But if you wanted to tactically overweight semiconductors or chips or something, I think ultimately that comes back to your investment time horizon and your financial planning needs. You have to respect these as volatile stocks, especially in the short term.
So whether we have a client with a long time horizon or a short time horizon, like someone in retirement, chances are we are going to have an allocation to this industry group.
Yeah, invariably.