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The opportunity of the decade. Top stocks from a popular sector are almost free

Jamie Cameron
15. 10. 2022
5 min read

Most of the market has been drowning in blood lately. But one sector is of more interest to investors - chips. And it's these stocks that analysts aren't afraid to say are now almost giving away for free! Which ones in particular?

Intel and Nvidia are just a fraction of the sector that is now being extremely punished by the market

Stocks closed lower on Monday, with the Nasdaq Composite Index falling to its lowest level in two years, as technology stocks continue to be the hardest hit in this bear market due to the sharp rise in interest rates.

The Nasdaq Composite closed at around 10,542, hitting its lowest number since July 2020. But the important thing is that it was dragged down by specific stocks. Mainly Nvidia $NVDA+0.8% and AMD $AMD-3.8%, among others.

$.IXIC is currently at its two-year low. The depreciated value is approaching 30%

The policy change weighed on semiconductor stocks after the Biden administration announced new export controls that restrict U.S. companies selling advanced computer semiconductors and related manufacturing equipment to China. More or less another part of the trade war.

Further (and more long term), weakening demand for computers and smartphones is also hitting chip makers. In doing so, President Joe Biden's decision to severely restrict the sale of equipment to Chinese firms that are used in the production of advanced semiconductors was already the nail in the coffin.

Also, KLA Corp. $KLAC-1.8%, which makes equipment for chipmaking, will begin to comply with Biden's order this week and restrict sales of some of its products. That will hit Intel $INTC-3.0% and SK Hynix, which are partners.

https://www.youtube.com/watch?v=lN8KjqT0tkY

In Asia, the impact of Biden's export restrictions on the region's tech stocks has already been felt, with Taiwan Semiconductor favorite $TSM-3.2% (the world's largest contract chipmaker and a major supplier to $AAPL+0.2%) down more than 8.3% in Taiwan trading.

The latest drop is again really rather significant

Even for a giant like Nvidia, there was a wobble. Granted, the P/E is still awfully high, but this can already be considered a solid dip. Weighing the fundamentals is up to everyone though.

Nvidia is also at a low and has written off nearly 44% for the year

I've already noted here that Intel is a very popular headline. Its valuation is starting to look extremely attractive. Unfortunately, there is still a bogeyman in the form of the "decline" of the company from a technology perspective. A lot of people are talking about Intel starting to run out of breath a bit in the competitive race. But that's probably for a deeper analysis, which has come up a few times here. What is clear, however, is that sales are now in a pretty massive slump.

Intel's chart looks similar

The question, of course, is whether this stock is just being extremely punished because of the current situation. Indeed, the other possibility is that they are (logically) returning to "justified" levels because they have been ridiculously overpriced for several years. For Nvidia specifically, this will be the case, at least in part. Huge hype, supply outstripping demand, cryptocurrency mining boom, etc.

All of which drove the price of the company and the sector up unjustifiably. As many skeptical investors have agreed.

https://www.youtube.com/watch?v=7TURZTzJy7I

Other reasons for the chipmaker slump?

Just general market sentiment - when a recession looms, cyclical sectors get hit. And the semiconductor industry is certainly one of those cyclical sectors. Its sales can vary widely depending on the state of the economy.

It is true that over the past 35 years, the industry has grown faster than the rest of the economy, thanks to falling costs, the ability to process data more efficiently and the ubiquity of chips in modern products.

And for the past decade, investors around the world have been appreciating the technological prowess of chipmakers. The SOX index, which tracks the world's largest manufacturers , has averaged an annual return of 25.2%, outperforming the broader NASDAQ Composite index, which has "only" 17.6% annually. However, that trend reversed in December with the rise in long-term interest rates, spurring a decline in valuation multiples for fast-growing sectors, including semiconductors.

As of the end of 2021, the SOX P/E multiple has declined from 25x to 14.1x. This trend has accelerated recently as several popular semiconductor manufacturers have lowered their forecasts for this year.

What about you? Are you investing in chips now? Are they already carved out enough to buy? What are you investing in, if any?

If you enjoy my articles and posts, feel free to throw a follow. Thanks! 🔥

Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and a few other analyses. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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