To The Moon

There are still medium- and long-term opportunities in chip design, manufacturing, and production in the semiconductor industry

Apart from whether the U.S. stock index $S&P 500(.SPX)$ $NASDAQ(.IXIC)$ $DJIA(.DJI)$ will fall or continue to rise in the second half of the year, there are some medium- and long-term opportunities that investors should seize. For example, the semiconductor sector, which is benefiting from generative AI, and companies that are benefiting from the shift in manufacturing and chip computing.

1. The semiconductor industry benefiting from Generative AI:

The semiconductor industry is on the upswing. In Q2, revenue levels across the global semiconductor industry recovered, and demand for AI chips increased significantly. This recovery cycle will not be short-lived. Moreover, the allocation of institutions to the semiconductor sector is still low, and there may be some room for it in the future.

UBS forecasts that $NVIDIA Corp(NVDA)$ semiconductor sector revenue could grow to $19 billion by 2025, accounting for 14% of global non-memory semiconductor industry revenue.

In the field of AI chip design, besides $NVIDIA Corp(NVDA)$ , the absolute monopolist, $Advanced Micro Devices(AMD)$ has other good chances. Semiconductor equipment manufacturers $Taiwan Semiconductor Manufacturing(TSM)$ and $ASML Holding NV(ASML)$ are expected to increase demand in the future. After the beginning of each recovery cycle in the semiconductor industry, the area of memory production is often the beginning of explosive growth.

Q: Is the valuation too high?

• Although the overall semiconductor sector has risen sharply this year, the valuation is slightly above the historical average after a recent decline, but given the long-term growth prospects, this valuation level is actually OK.

• In addition, the institutional allocation to the entire semiconductor sector by mutual funds and hedge funds still has room for improvement.

• Look at the $Philadelphia Semiconductor Index(SOX)$ data since 1995. Every time a new high is reached after one year, the performance in the following six months is still excellent. Therefore, the future is optimistic, even if there are some corrections in the short term. $Semiconductor Bull 3X Shares(SOXL)$

2. Industries benefiting from the Manufacturing Reshoring and Chips Act

Another direction that deserves attention is that construction spending in U.S. manufacturing has jumped in the past two years, manufacturing employment has also exceeded pre-epidemic levels, and manufacturing wage levels are also at their highest in 35 years. If the shift in manufacturing in the U.S. is ongoing, the Chips Act or the Infrastructure Act opportunities can be benefit.

A first look at the area of industrial automation:

- $Rockwell Automation(ROK)$ is a company that provides products such as control systems, software and sensors to industries such as automotive, food and beverage, life sciences, chemicals and power generation. It also offers some solutions to reduce costs and increase efficiency for businesses.

- $Emerson(EMR)$ is a global technical engineering firm that provides solutions for the needs of industrial, commercial, and consumer markets.

- $Ansys(ANSS)$, which the company's products primarily help engineers and designers simulate and analyze various.

The second area is factory REITs: the business model of these REITs is to lease factories and generate rental income. Profit from American reindustrialization, especially factories in the southern and midwestern regions of the United States. These areas are favored by manufacturers because of their strategic locations, good transportation networks and relatively low operating costs. Thus, $Stag Industrial(STAG)$, $EastGroup Properties(EGP)$, and $LXP Industrial Trust(LXP)$ each have some advantages.

The third direction is to build two leading companies in construction services and equipment leasing:

• $United Rentals(URI)$, the largest construction equipment leasing company in North America, offers a variety of construction and industrial equipment, and its leasing business is expected to continue to grow.

• $Jacobs Engineering(J)$ , a global engineering firm that provides technical, consulting, and construction services to a variety of industries. As manufacturing and infrastructure grow, demand for the company's services is expected to increase.

The final direction is the beneficiary of the Chips Act: the United States has created an incentive of approximately $ 53 billion to encourage self-sufficiency in semiconductors in the United States. The Chips Act is expected to begin distributing these funds in 2024.

• $ON Semiconductor(ON)$ is an integrated design/manufacturing supplier with core competencies in excellent silicon carbide (SiC) products and a commitment to the extremely high-growth trend of electric vehicles, while its capital expenditures may also receive a good subsidy.

• And Chip Foundry $GLOBALFOUNDRIES Inc.(GFS)$’s long-term target of 40% gross margin and 20% capex ($2-4 billion per year) does not yet include the upcoming allocation of more than $100 billion in domestic manufacturing and tax incentives in the U.S. and Europe potential benefits.

These areas mentioned above may be better long-term investment directions, whether in the second half of the year or in the next few years. The stock mentioned above is basically just an example, and Tigers can do more exploration.