Investing in Semiconductors 2022 - Part 2

Published on 09/24/22 | Saurav Sen | 7,250 Words

The BuyGist:

  • This is a follow up to Semi-conducting Rationality.
  • In this analysis, we do a detailed scenario analysis (in light of elevated risks from China) for most of the major semiconductor companies. 
  • Some of these companies are in our portfolio. 
  • We conclude with a definitive "sell price" for each company based on the scenario analysis, with definitive portfolio actions.


We’re revisiting our semiconductor exposure because the market has forced us to. And our subscribers deserve another deep dive during these turbulent times. It seems to us that there is just no good news out there for equity investors in general, and we’re not alone in feeling that way. This feeling is amplified in the semiconductor sector. 

A heady mix of uncertain geopolitics, tempered growth expectations, increased risk aversion, higher interest rates, and the ever-increasing possibility of a global recession have hit the semiconductor sector hard. Take a look at the year-to-date returns of some of the big guns of the industry: 

We did a deep dive on semiconductors a couple of months ago. But a couple of things have happened since then: 

  1. The Biden administration took an aggressive stance on the sector by imposing restrictions on American semiconductor exports to China. 
  2. Nvidia’s latest quarterly results surprised everyone – the big sequential decline in Gaming chip sales was a reality check for a company that seemed to be invincible just a few months ago.
  3. Central Banks around the world have taken a more aggressive stance – inflation seems to be more persistent than they previously expected, pushing them to consider risking economic recession to tame the beast. 

This potent cocktail of negative factors was enough for us to take another look at our semiconductor portfolio of 6 companies. The goal is do our work now and sit tight until the world is more normal, with a fair distribution of good and bad news. We just want to sleep well at night. In the sections below, we’ll dig into each company’s fundamentals one by one. We’ll also dig into Intel’s fundamentals even though it’s not in our portfolio. 

Hint: We’re still not buying Intel.

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