Missed the AI rally？Chip stock is on the rise

To the Moo wrote a column · Apr 11, 2023 21:50

In late November 2022, ChatGPT, a chatbot developed by OpenAI, was launched and quickly exploded around the world, with more than 100 million unique users worldwide in two months. Many believe that this large language model AI tool has put humanity at the crossroads of the productivity revolution once again. $NVIDIA(NVDA.US)$founderJensen Huang used the term "iPhone moment" to describe the development of AI.

Stimulated by this good news, $ChatGPT(BK2136.US)$ such as $NVIDIA(NVDA.US)$ rose over 83% and $Meta Platforms(META.US)$ rose over 75% so far this year (as of April 6) in US stocks; $Chatgpt Concept(BK1347.HK)$such as $MEITUAN-W(03690.HK)$rallied over 70% and $SENSETIME-W(00020.HK)$ rose 50%.

However, AI concept stocks have been overhyped, and no specific performance has been seen yet, so the risk of high volatility is high. Relatively speaking, another sector that is favored by the concept of AI and is about to "reversal" in fundamentals, and will have continuous performance support in the future, the chip stocks, may have just entered the starting point of the bull market.

Is the chip stock rebound just the beginning?

1、The global semiconductor cycle has basically bottomed out, and the market has already scrambled in advance.

source:ifind

Semiconductor is a cyclical industry. For example, semiconductor sales growth rate is considered to be the vane of the semiconductor industry boom, and each round of boom upswing corresponds to a big wave.

For historical reference, semiconductors have experienced eight cycles in the past 30 years, with an average of one cycle every 44 months.

Since 2005, the semiconductor market inflection point is generally ahead of the boom inflection point by about two quarters.

The main reason for this is that before the boom bottomed out, some investment institutions took the lead and drove the market to bottom out, which is called "anticipating your anticipation".

The current semiconductor cycle, which started in June 2019, has lasted 47 months, exceeding the historical average cycle length, and the year-over-year sales growth rate has slipped to -18.5% as of the end of January, lower than January 2012 (-8.8%), May 2016 (-7.7%), August 2019 (-15.9%) and second only to the February 2009 (-30.4%) The bottom.

It is clear that the down cycle of the semiconductor boom has been long enough and deep enough that the $PHLX Semiconductor Index(.SOX.US)$ has jumped on the rebound since last October, validating the cycle reversal logic that the market has started to buy chip stocks.

2. How much more room is there for the semiconductor index to rise?

Again, using history as a guide, over the first eight cycles of semiconductors over the past 30 years, the $PHLX Semiconductor Index(.SOX.US)$ has risen as follows:

source:MooMoo

Based on the average of the highest rise in each cycle, there is still a lot of room for rebound in the current cycle, and we can even say that we are still at the starting point of the bull market.

3、Greater benefits: AIGC brings more upside to this cycle

Whether it is the significant growth in demand for training and reasoning chips driven by AI itself, or the demand derived from hardware replacement, we can see that the semiconductor industry has more room for growth in the future.

A case in point is that recently memory chip giant $Micron Technology(MU.US)$ welcomed the largest quarterly loss in nearly 20 years, but Micron's stock rose 7.19% instead of falling.

This is in addition to Micron's guidance that Q2 inventories are expected to de-stocking, providing a clearer signal of the bottom of the semiconductor cycle, Micron Technology's CEO emphasized during the earnings call that artificial intelligence technology will boost chip industry sales in the future.

Mikron related data shows that an AI server uses 8 times more DRAM and 3 times more NAND than an ordinary server. Mikron's CEO said that the market size of the storage chip industry is expected to reach a record high in 2025.

How to invest in chip stocks?

1、Wall Street bullish on the subject of Hong Kong and the United States stocks

Since the semiconductor industry itself is at the bottom of the cycle, the logic of the recovery is confirmed, coupled with the development of artificial intelligence, a significant demand pull, the current chip stocks how to vote?

We still first combined with Wall Street on this sector of the company's expected target price to see.

Missed the AI rally？Chip stock is on the rise

Data filter: U.S. semiconductor companies with market capitalization greater than $15 billion; Hong Kong semiconductor companies with market capitalization greater than $5 billion; top 10 companies in terms of expected rate of return

Average target price refers to the average of target price forecast made by institutions in the past three months

Company target price inquiry portal: "Analysis-Interpretation-Target Price" on MooMoo

2, Hong Kong stocks subject to flexibility or better than U.S. stocks

Compared to U.S. stocks, Hong Kong stocks of chip stocks this year, the stock price flexibility may be greater, mainly because for Hong Kong stocks of chip stocks, there is an additional layer of investment logic: domestic substitution.

Recently, countries are trying to realize the independent control of semiconductor industry chain, especially China as a big demand country of semiconductor, especially the equipment, manufacturing and part of the design.the degree of nationalization is low.

Domestic substitution is the structural thrust of the development of China's semiconductor industry in the medium and long term.

On the capital side, the Shanghai-Hong Kong Stock Exchange may benefit more from the southbound capital. For example, $SMIC(00981.HK)$, $HUA HONG SEMI(01347.HK)$, $SHANGHAI FUDAN(01385.HK)$, etc.

3、Investment alternatives: semiconductor ETFs.

If individual stocks are not preferred due to the lack of diversification, one may consider ETFs that track the industry which includes a full range of leading companies in the industry without needing to spend too much time on research.

For investors' reference, the following ETFs with a size larger than US$1 billion are screened: