To The Moon

The semiconductor capital equipment space is fascinating.

These companies provide the equipment necessary for semiconductor manufacturing, large players include $ASML Holding NV(ASML)$ $Applied Materials(AMAT)$ $KLA-Tencor(KLAC)$ $Lam Research(LRCX)$ and Tokyo Electron.

Over the last 40 years, the industry has consolidated to the point where most of these companies operate as a monopoly or duopoly in their vertical.

Each step of the semi value chain has 40-50% gross margins. This results in numerous companies with high market share, wide moats, strong margins, and a good growth profile.

These companies also return significant amounts of cash to shareholders through dividends and buybacks. 20-yr returns & market cap shown below.

The 10-year total returns are even better, with 25-30% annual returns for each of these companies.

@AITechInvesting

Semiconductors ranked by Price/Sales/Growth: $Advanced Micro Devices(AMD)$ $Applied Materials(AMAT)$ $Taiwan Semiconductor Manufacturing(TSM)$ $KLA-Tencor(KLAC)$ lead the way.

Valuation multiples aren't normally useful in the semi industry due to its cyclicality.

To help eliminate some of the cyclicality of the industry, I’ve charted out P/S/G for large semiconductor players below.

Growth is based on 5-year revenue CAGR. Only companies who have grown revenue (excludes $INTC) and have been public since 2019 are included (excludes $ARM).

Note: this still isn’t a perfect metric, acquisitions skew P/S higher from inorganic revenue growth. However, it does provide a starting point to then dive deeper into companies you find most interesting.

Image

Companies with market cap greater than $35B were included, companies and metrics here:

Image