πππThe US markets are down today after a flareup in geopolitical risks and disappointing forecasts from 3 US Big Banks.
Semiconductor stocks are down too with the news from Wall Street Journal that said China have given the biggest Chinese telecom companies until 2027 to begin phasing out core processors made by foreign companies.
$NVIDIA Corp(NVDA)$
However CFRA Analyst Angelo Zino maintained a positive outlook on the semiconductor industry.
Nvidia enters correction territory as its share price has fallen from its all time high of USD 974.00. Nvidia has been a key beneficiary of the AI boom as its Graphics Processing Units are in high demand. Nvidia's GPUs are commonly used for computer intensive AI applications such as Open AI's ChatGPT AI chatbot. Its server chips are also a key component of Data centres.
Nvidia's financial performance has been outstanding in the past year. It reported a 486% jump on non GAAP earnings in Q423, citing huge chip demand thanks to the popularity of Generative AI models.
Nvidia has also recently released the Blackwell GPU, powering a new era of computing. The Blackwell GPU architecture features 6 transformative technologies for accelerated computing which will help unlock breakthroughs in data processing, engineering simulation, electronic design automation, computer aided drug design, Quantum computing and generative AI. These are all emerging industry opportunities for Nvidia.
On Tuesday, Intel unveiled a new AI Chip called Gaudi 3, aimed at powering large language models which is the cornerstone technology behind Generative AI tools like OpenAI's ChatGPT. Intel said that the new chip is twice as power efficient as Nvidia's H100 GPU and can run AI models 1 1/2 times faster than Nvidia 's GPU.
Intel' s share price has been down 7% this week and has dropped 25% year todate. However Intel is a major beneficiary of the US Chips Act with USD 20 billion in grants and loans to help finance the expansion of its production capacity in the US.
AMD is the currently the closest rival to Nvidia's AI chips with its 2 new powerful microchips - The Ryzen 8040 that promises to boost AI applications by up to 60% and the MI300X accelerator chip that is used in data centres. These 2 new chips are meant to compete directly against Nvidia's data centre chips.
AMD is down 2.8% for the week but is up 17% year todate.
TSM is the world's largest Semiconductor Foundry company. While Nvidia and AMD design the chips, TSM makes these chips. Its customers also include Qualcomm, Broadcom, Apple and many others.
Just this week, TSM has announced that it is receiving USD 6.6 billion funding from the US Department of Commerce to build its 3rd leading edge fab in Phoenix Arizona under the Chips Act.
These 4 Semiconductor companies are among the best in the world. For a small investor like me, I prefer to invest in $VanEck Vectors Semiconductor ETF(SMH)$ which includes all these 4 companies plus Broadcom, ASML, Lam Research, Applied Materials, Qualcomm and Analog Devices in its Top 10 holdings. Total number of holdings is 26.
Nvidia is the Top holding with 24.5% weightage followed by TSM at 9.7%. The expense ratio is 0.35%. Dividends are paid annually. The current dividend yield is 0.46%.
Performance wise SMH has done well. Even though it has dropped 2.9% today, SMH is still up 30% year todate and in 2023 SMH had jumped by 74%.
I like SMH as it is well diversified and minimises my risk on single stocks. It does the heavy lifting for me and it chooses the best semiconductor stocks all nicely packaged into 1 great ETF.
Semiconductors are the picks and shovels of the AI revolution as the world progresses to a future where AI are very much part of every day living.
It is times like now when the markets are volatile, that the best bargains are found.
As Warren Buffett likes to say When there is fear in the markets it is time to be greedy.
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