Try asking a group of advisors this question: If you saw an opportunity to get clients into stocks with reasonable P/Es (from low prices and sustained good earnings), low risk (indicated by fundamentals) and strong projected growth (signaled by unflagging global demand), would you jump at the chance?

Most would probably answer “yes.”

Yet, the fallen prices of semiconductor stocks, whose (otherwise) robust condition the above question describes, indicate that the advisors’ answer might not be completely honest.

Many advisors may be letting the new bear market and fears of near-term recession fears deter them from taking advantage of low semi valuations. Contrary to the philosophy of strategic opportunism they may espouse, they’re staying away.

Semiconductor companies are no exception to the NASDAQ’s spring swoon—a trend that has given rise to what I call TARP (tech at a reasonable price). In the case of semiconductors, valuations are startlingly low, considering highly positive projections from analysts and sanguine market outlooks.

Yet some advisors tar all tech stocks with the same brush, regardless of merit. In doing so, they may be part of a market that’s throwing the beautiful baby of chip stocks out with bathwater that includes high P/E companies with little or no profit.

Doubting Thomases
To doubting Thomases, it doesn’t matter that demand for chips is insatiable, stemming from their role in all things digital and many things not—a scenario that could be likened to making bricks for a world where everyone's building houses made only of bricks.

The tape-obsessed would say, well, the overall market is down and may go lower, disproportionately punishing all tech stocks—the good with the bad and the ugly--so let’s wait and see. But trying to call the bottom, of course, is a fool’s errand. And regardless, the more practical question is: What is this industry’s short- and long-term potential, relative to current price levels?

Seldom can this question be answered for any industry as unequivocally as it can now for semiconductors, as abundant indicators project reliable near- and long-term growth. Yet the market’s characteristic obsession with immediate gratification leaves it unimpressed.

Analysts’ projections are supported by extensive market research. To wit:

• Overall, the semiconductor industry remains on track to deliver another healthy year of growth as the super cycle that began in 2020 continues, a report from McKinsey & Co. concludes.

• For 2022, growth of about 10% is projected–to a record $600 billion-plus—and by 2030, to more than $1 trillion, reports Deloitte, characterizing this growth as “robust.”

• These expectations/projections are linked with extremely high confidence in the industry—at an all-time high, KPMG reports—regarding performance this year. About 95% of semiconductor company leaders forecast their company's revenue to grow this year—68% of them at 11% or more. Further, 88% expect to expand their capital spending and workforces this year.

• About 70% of the industry’s growth this year will be driven by just three user industries: automotive, computation and data storage/wireless.

Even if global economic activity declines significantly, semiconductors’ growing role as essential building blocks in technical and non-technical products will likely continue like the energizer bunny.

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