Pandemic or not, I’m doing my part to keep the chip industry healthy.
See, I just bought three dozen semiconductors.
And I don’t meant shares in chip companies.
To be more energy-efficient, I bought a bunch of semiconductors disguised as lightbulbs.
Let me explain: I bought LEDs, or Light Emitting Diodes. These are tiny semiconductors that emit light when electrical current flows through them.
They’re used in TV remotes, monitors, smartphones, and of course, lightbulbs. They use a fraction of the juice that conventional lightbulbs do.
Grand View Research say the global LED lighting market alone is set to grow by 13.4% annually from $54 billion last year until it reaches $127 billion in 2027.
As impressive as that sounds, that’s still just a small part of the $430 billion chip sector.
The Convergence Economy
Now then, just weeks ago Wall Street was convinced the Covid-19 financial panic would bring chip sales to a grinding halt.
That didn’t happen. Instead, chip sales actually went up by 6.1% in April compared to the year before.
Truth be told, I’m not surprised. Tech got a heavy workout and saved America during the COVID-19 shutdowns.
It’s all because of what you and I have been talking about for years: the convergence economy.
As the coronavirus has made clearer than ever before, we can’t think of technology as split up into separate sectors anymore.
Instead, all facets of tech have converged into overlapping rings that simultaneously all drive each other forward.
New sensors and chips require new software and AI to make sense of the information. In turn, that requires more data center capacity and faster wireless connections, both of which in turn require smaller and faster chips to run.
This holds true for all the major tech trends we’re living through right now. We’re talking everything from the rollout of 5G wireless broadband, to AI seeping into every aspect of our lives, to the rise of the Internet of Things.
For example, the Internet of Things requires 5G wireless to be able to connect some 50 billion devices. And it will require AI to manage them all.
In short, tech growth feeds more tech growth, and semiconductor chips are an essential piece of the puzzle. That ‘s why I continue to be so bullish on the chip sector and its ability to payoff for tech investors, even amid economic slowdowns.
Covering The Whole Sector
That ‘s where the iShares PHLX Semiconductor ETF (SOXX) comes into play. Composed of 35 leading chip companies and charging only a 0.46% expense ratio, this is a very cost-effective way to play all the trends driving chip sales today.
SOXX is brimming with winners making chips for everything from LEDs and 5G to AI and smartphones. That means you get a piece of the action in the chip industry’s big impact on the convergence economy, including a small piece of all the LED lightbulbs I just bought.
Some of the key holdings include:
- Advanced Micro Devices Inc. (AMD). The long-time rival to Intel Corp. (INTC) on the computer processor side and to NVIDIA Corp. (NVDA) on the graphics processor side, AMD has more than doubled since 2019. And the story is getting better. AMD’s chips will power the PlayStation and Xbox gaming consoles due out this holiday season. The Silicon Firm now makes some of the fastest chips on earth.
- Analog Devices Inc. (ADI) plays a dominant role in analog chips, which help convert external sensor readings into digital signals. An early 2017 purchase of Linear Technology Corp. has helped cement this firms leading role in the space, and it’s developing key radio transceivers for 5G base stations as well chips for using the new millimeter wave spectrum that gives 5G many of its advantages.
- Teradyne Inc. (TER) is the main provider of robots for making and especially testing chips as they’re being made, making sure companies’ chips come out exactly the way they want them to. With the convergence economy producing ever more chips for 5G, autonomous cars, AI, and the Internet of Things, the need to accurately ever smaller designs is only going up.
- Cree Inc. (CREE) is the leader in the LED lighting technology I’ve been buying recently, being the first company to develop a blue LED chip. That enabled the huge LED billboards and large monitors we’re all using today, as well as my new lightbulbs. Cree also uses its own advanced materials to make even more power-efficient systems for electric cars and trains, as well as 5G towers.
A Silicon Foundation
Semiconductors are now at the heart of the global economy. And we’re just getting started. In almost every industry, plans call for rising chip content in the years ahead.
Just one major project coming up on the horizon, the rollout of 5G wireless networks, is going to create massive new demand for semiconductors.
It will potentially drive as much as drive $12.3 trillion in economic activity over the next decade. Now, you can click right here to check out my special research on how best to play this wireless revolution.
But in the meantime, the iShares PHLX Semiconductor ETF is a very savvy way to cover the semiconductor waterfront at a reasonable cost.
Over the last five years, the S&P 500 is up 46%. By contrast, SOXX is up 183% over the same period, just shy of exactly four times the broader market.
I always tell investors to focus on the long haul, and the SOXX ETF’s track record has been great over that time scale.
And that’s why I keep recommending it.
Add it all up and you can see the LEDs I recently bought are shining a bright light on a great way to build your tech-wealth portfolio.
With this investment, the chip sector will pay your handsome profits for years to come as the convergence economy pushes your wealth steadily higher.
Cheers and good investing,
Michael A. Robinson