Five Semiconductor Stocks to Know About
Semiconductors are like the brains of the computer world. They control the flow of electricity and allow all our modern devices to function. Without semiconductors, there would be no televisions, laptops, phones and all the rest. But semiconductor companies can be a bit obscure, highly specialised and unknown to the general public.
The companies listed below are all found in the Global X Semiconductor ETF (SEMI).
Taiwan Semiconductor (TSMC)
TSMC is a national champion of Taiwan and the biggest company on the country’s stock exchange by far. Based in Taipei, TSMC is the world’s largest factory or “foundry” for semiconductors, producing more than 50% of global supply. The company has benefited from Silicon Valley chip designers outsourcing chip manufacturing, with its largest client being Apple. TSMC is also at the forefront of continued chip miniaturisation. TSMC and Samsung make the world’s smallest transistors, which are the gates that control computer code, which allow for better more powerful computers and phones. Their fundamentals are very strong, with net margins of 40% and profits growing at 17% a year, as of September 2022 according to Morningstar.
The Dutch giant, now one of the largest companies in the world, and often called “the most important company that no-one has ever heard of”. ASML makes the machines – called EUV lithography, in industry jargon – that put transistors onto microchips. They have a monopoly on these types of machines, with no competitors anywhere close to being able to produce a replacement. According to the New York Times, China is trying to create a workaround to ASML’s lithography machines, after President Trump banned their export to China. However, ASML is so advanced that it will take at least 10 years, the NY Times indicates. Their lithography machines cost US$130 million, making them some of the most expensive machines in the world.
Nvidia makes graphics processing units, or graphics cards (GPUs). These are like super advanced computer chips that allow many detailed processes to be run at the same time. GPUs started out as mostly of interest to video gamers, as superior GPUs made for better graphics on PlayStations and PC games. However the use of GPUs has widened quite dramatically in the past 10 years, and now includes bitcoin mining but perhaps more interestingly artificial intelligence. As GPUs allow many computations to be run in parallel, they are needed for AI.
Advanced Micro Devices
Alongside Nvidia and Intel, AMD is one of the three Kings which dominate the central processing unit (CPU) and GPU space. CPUs are at the core of every computer, from gaming consoles to laptops. They act as the command centre, controlling every process in the machine. Of the three giants in this space, AMD is the only designer which has a strong foothold in both CPU and GPU markets, as well as an insurmountable lead in the corporate server sector, which requires powerful CPUs to read massive amounts of data being received and sent from a multitude of sources. While the early 2010’s marked a relatively dark period for AMD, the 2020s has seen an AMD resurgence due to massively improved architecture and chip designs. Both of AMD’s new generation flagship CPUs and GPUs have begun to put up record-breaking numbers, increasingly capturing market share from its two top competitors.
Microchip Technology is an industry leader in the development and manufacturing of microcontrollers (MCUs). Much like how a CPU acts as the brain for powerful computers, MCUs are less powerful, but lower cost units responsible for controlling the operations of the more basic electronics in our lives. From childrens toys to remote controls, car headlights to electric toothbrushes, MCUs are at the heart of all the products you might not think twice about. As we move towards a future of connectivity with ever more ‘smart’ devices, the usage of MCUs will only become more and more prominent, making Microchip Technology a promising contender for continued performance into the future.
SEMI: For investors seeking to gain exposure to companies that stand to potentially benefit from the broader adoption of tech-enabled devices that require semiconductors, the Global X Semiconductor ETF (SEMI) provides a solution. This thematic includes the development and manufacturing of semiconductors.
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