Institutional Investing / Macro Minutes

Macro Minutes: Performance Drivers for Semiconductors

Key Points

  • Accelerated chip demand during the pandemic and supply chain issues led to stronger pricing power and margin expansions for chipmakers.
  • From an investment perspective, not all semiconductor companies are created equal. Semiconductor companies may design, manufacture or provide infrastructure for chip production.
  • Semiconductor margins meaningfully expanded over the years due to specialised equipment and complexity in technology.


A screen Appears with a title “Performance Drivers for Semiconductors”

Underneath the title is the presenter's name and picture” YoungRo Yoon”

Fisher Investments Securities Research Analyst on behalf of Fisher Investments and Its Affiliates.

A man appears on the screen wearing a navy suit, sitting in an office, he begins to speak.

A banner identifies him as “YoungRo Yoon” Fisher Investments Securities Research Analyst on behalf of Fisher Investments and Its Affiliates.


YoungRo Yoon: Hello, and welcome to Fisher Investments. Macro minutes. My name is YoungRo Yoon and I'm a securities analyst covering semiconductors in the research department. In this session, we would like to give you a brief overview on the semiconductor industry and our outlook.


On the screen a chart appears, its titled “Semiconductor Industry outperformed the Broader Market”

The chart is showing the total return over the years: 2019, 2020, 2021 and 2022.


YoungRo Yoon: Recently, we've seen some volatility in the stock market and that's also been true in the technology sector. However, as this chart shows, semiconductor companies have outperformed the technology sector as well as the broader market. Going back to the pre pandemic periods with COVID chip demand accelerated with trends like gaming, streaming, data consumption and connectivity.

 On the supply side, we've seen COVID related factory shutdowns and weather issues impacting supply chain. As a result, chip shortages led to stronger pricing power and margin expansions for chip makers.


On the screen a table appears, its titled “Categories of Semiconductor Companies”


YoungRo Yoon: From an investment point of view, it's important to note that not all Semis are created equal. Semi firms may design, manufacture or provide infrastructure for chip production. We'll look at different categories of semiconductor firms starting at the chip IP. At the top, you can think of chip intellectual property companies as not only fabless companies, but also chip less companies. It's a chip company without a chip. Instead, they license their chip designs to other companies. Next, we have the WFE, wafer fabrication equipment companies. These are companies like ASML and Applied Materials that sell equipment essential to the production of chips. Next, we have fabless and foundries. Nvidia and AMD are fabless companies that focuses only on the designing of the chips while outsourcing the manufacturing to foundry companies like TSMC and Samsung. Lastly, integrated device manufacturers are companies such as Intel and Texas Instruments who does both the designing and the manufacturing of the chips in house.


On screen a new chart appears, its titled “Not all Semiconductors are the same”

This chart is showing the semiconductor industries total Cumulative Returns over time.


YoungRo Yoon: Here we have the performance of different categories of semiconductor companies and we further separated out memory chips from IDNs as they also have unique characteristics. As you see, recent performance favored fabless designers on increasing demand for high performance computing, AI, gaming and others. Equipment providers also benefited from supply constraints and an accelerating semiconductor CapEx environment. You can also see memory producers and integrative firms underperform its peers. With the fabless outperformance, the valuation of high-end chip designers also reached higher levels. And this may be concerning for some investors, but we believe that semiconductor industry change in meaningful ways that justify the re-rating.


On the screen a new chart appears, its titled “Semiconductor Margins are increasing”

The chart is showing Semiconductors vs Software margin increase overtime.


YoungRo Yoon: Consider margins-- semi margins used to lag behind other tech industries like software. Yet semi margins have meaningfully expanded. Specialized equipment and complexity in technology led to stronger pricing over the years. Additionally, some companies evolved from a chip only model to offering custom software and security solutions.


On the screen a DataGrid appears, it is titled “End Markets are More Diversified”

The grid shows Semiconductors by End Market – 2000 and by End Market -2022


YoungRo Yoon: Also, semis historically have been a very cyclical industry. However, more diverse end markets and industry consolidation have somewhat reduced that cyclicality. The historical reliance on PCs now expanded into smartphones, data centers, autos, AI, gaming, cryptocurrency and beyond. This diverse set of end markets should help stabilize semiconductor demand and provide stable earnings. And these are high quality characteristics investors favor in the late market cycle. Furthermore, as you can see in the table below, secular trend towards enhanced consumer devices and data connectivity will continue to support chip demand and chip content is projected to rise in variety of applications.

YoungRo Yoon: Lastly, we want to clarify that cyclicality of semis have not gone away entirely. Semi CapEx plans in the recent years were meaningfully higher than average. Government spending plans across the globe are significant to bolster chip production in the near term. Today, semis are in short supply, yet the coming capacity expansion may result in over supplied market in the next several years. However, as of now, we believe semi demand and pricing should remain strong in the near-term. The industry’s high margin profile with high quality characteristics should allow semiconductors to outperform in the late stages of the bull market.


YoungRo Yoon appears on the screen again talking


YoungRo Yoon: Thank you for watching. If you'd like to learn more about our views, please reach out to your relationship manager.


YoungRo Yoon finished talking.

A white screen appears with the following written on it “Thank you for watching! If you'd like to learn more about our views, please reach out to your relationship manager or email

 A series of disclosures appears on screen: “Investing is Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of Fisher Investments or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.



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