How to invest in Chip-tech stocks

If you are reading this, you are using a semiconductor, otherwise known as a “computer chip.” The small processing unit is one of the most widely used elements in contemporary technology and can be found in anything from your wristwatch, to your washing machine to billion-dollar space stations. With such a dominant presence in our daily lives, it is no wonder that the semiconductor industry has significant potential for investors. To give investors exposure to the semiconductor industry, eToro has created the Chip-Tech Portfolio. 

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Here are some quick figures to help you to understand the financial significance of this market:

  • More than one trillion chips were shipped globally in 2020
  • Global chip sales in 2020 totalled more than $440 billion
  • The market is expected to grow 8.6% annually, reaching $800 billion by 2028

The semiconductor industry

It is really difficult to imagine a world without semiconductors. So many of the things we do rely on these chips, which are used both to carry out digital processes and to store information. The chips are made of silicon, which is used both due to its abundance as well as its conductive capabilities. Since it conducts electricity, but not as quickly and efficiently as copper, for example, it can be used to carry precise electrical signals, which are essential for computer processes. Hence, the name “semiconductor.”

In 2020, the industry was worth around $400 billion. As Impressive as that figure is, the market is expected to double over the next 7 years. It is no wonder, then, that many investors are looking to the industry as a growth opportunity.

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The 2020 chip shortage

The Covid-19 pandemic of 2020 attacked the semiconductor industry from both sides. On the one hand, lockdowns forced many chip manufacturers to slow down or halt activities altogether, causing a decrease in global supply.

At the same time, many companies shifted to working from home, thereby relying on technologies such as telecommuting, which require processing power. Therefore, the demand for chips was on the rise. The combination of decreased supply and increased demand was the perfect storm.

The global shortage disrupted the activity of numerous companies across various industries. The automotive industry was hit first, causing several carmakers to temporarily shut down their operations. Later, other industries were impacted, including smartphone manufacturers, TV companies, video game console producers and many others.

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What drives the chip industry’s growth?

The world is increasingly becoming more digital and more computer reliant. If in the past, a car, washing machine or wristwatch had little or no digital components, today, they all have powerful computer chips in them. Moreover, in the coming years, there will be several growth drivers that have the potential to propel the industry to new heights.

5G technology

The next-generation cellular data network is already active in some parts of the world and is gradually being rolled out in others. 5G promises significantly faster cellular data transfer speeds, enabled by a large number of small antennas and, of course, computer chips. In the near future, many more appliances will become connected and “smart,” utilising Internet of Things (IoT) technology and 5G, both of which require the use of semiconductors.

Automotive industry technology

There are two major shifts in the automotive industry. One, the shift to electric vehicles, is already in motion, as innovative companies such as Tesla are dominating the industry, while more traditional companies, such as Ford, are also reorganising their manufacturing capabilities to produce electric cars. The second shift is the introduction of driverless cars. Autonomous vehicles may become the most significant revolution in travel since the invention of the steam engine, as it could potentially put an end to traffic jams and even to the concept of owning private cars. Either way, both the shift to electric and driverless cars are technology-heavy processes, which will require a significant amount of processors.

Smart cities

Another significant change that is already in the works is the creation of smart cities. Using 5G, machine learning, image recognition and many other technologies, cities around the world are becoming smarter. Smart city capabilities enable municipalities to better organise public transportation, monitor the city’s infrastructure, prevent crime and much more. Smart cities require a combination of different technologies, hardware and software, which will also increase the need for more semiconductors.

Investing in chip stocks

To enable its users to gain exposure to the semiconductor industry and chip stocks, eToro has created the Chip-Tech Portfolio. This ready-made, thematic investment strategy offers investors a fully allocated portfolio, comprising the entire chip supply chain: chip designers, foundries, integrated device manufacturers, silicon wafer producers, and more. It also provides investors with geographic diversification, as capital is allocated to chip companies in the US, Europe, and Asia.

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Sources:

  1. https://www.statista.com/statistics/802632/world-semiconductor-shipments/
  2. https://www.semiconductors.org/global-semiconductor-sales-increase-6-5-to-439-billion-in-2020/
  3. https://www.fortunebusinessinsights.com/semiconductor-market-102365

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CopyPortfolios should not be considered as exchange-traded funds, nor as hedge funds.

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