How hot are semiconductors?

Last year semiconductor stocks were volatile during U.S. and China trade wars. However, since the market bottomed out at the height of COVID-19, this industry group has gone nowhere but up!

I’ve always loved the semis, and while they required more patience last year than now, they’ve always been hot — but now they look even better.

That’s why I want to take the time to discuss my thoughts with you, and where I see the most potential for profit… 

In trading, it’s all about Finding Phoenix: the hottest sectors that rise the quickest and fiercest, from the ashes. Let me explain…

My Overall Take On The Sector:

As a momentum trader, I love investing in semiconductor stocks because it’s an area that tends to be volatile and has huge potential for growth. As such, it’s a group that loves to roar, especially after news brings it down. This is what makes it one of my favorite groups. Now more than ever, this industry appears to be heating up because of three reasons:

1. Consumer behavior has changed over time.
Ten years ago it was more uncommon for consumers to have access to smartphones, high definition televisions, or HD cameras. Now, you’d be hard-pressed to find someone that didn’t have one or all of these things. And because semiconductors are in all of the goods our society relies on now, this has been (and will continue to be) a high growth industry.

2. COIVD-19 has heightened the need for electronics.
Earlier this year the world went into lockdown. Now, we have millions of people working from home who previously weren’t, and they all needed equipment. Additionally, schools are moving toward online learning so there’s an increase in demand for children who need equipment as well. Semiconductors are needed to make these items, thus the recent surge for demand in this sector. My husband’s been attempting to order computer components — but they’ve been incredibly hard to find for months! This is because there’s now an outrageous demand due to the millions now working from home.

3. We’re entering the new ‘normal’.
Though we know COVID won’t last forever, its repercussions will be long-lasting. Once consumers get accustomed to something, they’re unlikely to deviate from their routine. More people will opt to work from home, and homeschooling will become the new ‘normal’. In fact, I’m experiencing this right now with homeschooling my son (he’s already told me that he never wants to leave ‘the school of mommy,’ and I’m starting to consider homeschooling for good). I’m sure I’m not the only parent who is thinking the same thing, which guarantees that semiconductors will continue to be in high demand for years to come. And of course, Leo’s happy — now he *has* to have a computer for school. It can’t even be used as a reward, anymore! 

It’s not just semiconductors either. Last week I did a segment on StockChartsTV discussing the strength in the cloud. Not long after, the cloud exploded, led by Salesforce (CRM), which we recently talked about in a Tuesday Trade Edition.

It’s clear that the use of semiconductors is ingrained within our society, and their use won’t slow down any time soon. That’s why I’ve been doing my homework and researching tickers in this sector.

Tune in next week for my continuation, where I’ll be going through specific tickers that I have my eye on, as well as specific tickers I’d stay away from. Let me know: what are your favorite semiconductor stocks? Next week, we’ll talk more about how to narrow down your favorites to pick a few to trade in the options market.

One of my all-time favorites is Advanced Micro Devices (AMD). I currently have a $90 then $95 price target on this Lisa Su run company. Even with the growth it’s seen this year, I think it’s poised for even more.