Semiconductor stocks, more known as chip stocks, rose on Thursday (3/24) as investors rediscovered their appetite for riskier assets and reacted positively to the bullish commentary from Nvidia and Intel this week. So far this year, chip stocks have been hammered by inflation and concerns that the Ukraine crisis will exacerbate supply chain challenges. Nvidia (NVDA) led Thursday's (3/24) rally, climbing 9.8% to US$281.50, which is its highest level since November 2021, followed by Microsoft Corp. (MSFT) rising 1.54% to US$304.10, Intel Corp. (INTC) rising 6.94% to US$51.62, and Texas Instruments Inc. (TXN) rising 2.86% to US$184.21. Nvidia announced earlier this week during investor day that its roadmap for the year includes new server chips focused on artificial intelligence and a plan to build the world's fastest AI supercomputer. Analysts were pleased with what they heard. "Fundamentally, we believe Nvidia is uniquely positioned to benefit from the growth of AI in hardware and potentially software," Deutsche Bank's Ross Seymore wrote in a note on Wednesday (3/23) and also recommended to hold the shares. Nvidia also sees vast potential in data center offerings, automotive applications, and gaming, with a combined total addressable market of almost US$1 trillion, which is higher than previously estimated. Nvidia estimates a total addressable market for gaming at US$100 billion, chips and systems at US$300 billion, artificial intelligence enterprise software at US$150 billion, Omniverse enterprise software at US$150 million, and automotive at US$300 billion.
On the other hand, Intel, which gained 7%, its most significant single-day gain in more than a year, was boosted by CEO Pat Gelsinger's request to the US government for subsidies for domestic semiconductor manufacturing. He believed it would strengthen American national security and could help alleviate the current semiconductor shortage plaguing the automotive industry and other critical sectors of the economy. "For the last five decades, oil reserves have defined geopolitics," Gelsinger said in an interview with CNBC International. "Where the fabs are located and is much more critical for a digital future," he added, referring to semiconductor plants. Intel has also planned to invest at least US$20 billion in a chip manufacturing complex in Ohio, US, as well as US$36 billion in a new "mega factory" in Germany and other European hubs. The US Labor Department report also aided these chips rally, showing that initial jobless claims fell to their lowest level since 1969 last week. Investors swooped in on shares of companies poised to benefit from an economic recovery in the United States.
Although supply shortages in the semiconductor industry made headlines in 2021, however, the acute supply-demand imbalance will ease by the year 2022. As a support, the insatiable appetite for semiconductors will continue to boost. The outlook for global semiconductor sales in 2022 also seems to be positive, as demand for chips for computers, smartphones, automobiles, and other products remains strong. Forecasts for the sector are likewise largely optimistic. Deloitte forecasts semiconductor sales will increase 10% to more than US$600 billion in 2022 this follows a 25.6% increase in 2021, according to World Semiconductor Trade Statistics. According to Brandon Kulik, a principal in Deloitte's Technology, Media, and Telecommunications industry practice, a combination of price increases will drive this year's revenue growth and modestly increased production. To cope with the rising demand for semiconductors, chipmakers such as Taiwan Semi, Samsung, and Intel are expanding their manufacturing operations. Meanwhile, the US government intends to strengthen the country's chip manufacturing capabilities. The United States House of Representatives introduced the America Competes Act of 2022 on Tuesday (1/25). The legislation includes US$52 billion to fund the Chips for America Act's semiconductor research, design, and manufacturing provisions. To summarize, the widespread use of the internet and the proliferation of smart devices throughout people's lives, as well as the growing demand that has reached an all-time high, all contribute to the semiconductor market's growth. This could be an excellent opportunity for investors to invest in the sector while keeping the aforementioned factors, such as how these are considered to be riskier assets, to hold in mind.
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