Why Semiconductor Have Outperformed the Market for a long time?

Over the past decade, semiconductor and semiconductor equipment stocks have consistently outperformed the broader markets, on average, by ~1100 bps per year, withannual outperformances in seven out of the last 10 years (trailing basis).

1) realization that semiconductors are the foundational building block for all innovation in the tech sector;

2) lower cyclicality in the industry, driven by end-market diversification and disciplined supply growth;

3) emergence of new semiconductor drivers – cloud datacenter, EV, IoT, AI/Deep learning;

4) more focus on profitability and free cash flow expansion driving strong capital return to shareholders; and

5) industry consolidation momentum remains a key driver for valuation support for semi stocks as companies continue to seek diversification, scale and earnings/free cash flow expansion. We expect the long-term positive fundamental trends to continue.