Hey Friends,
The semiconductors sub-sector has handily beaten the tech heavy Nasdaq 100 index this year, which incidentally is the best performing broad index this year. The gains come on the back of 5G hype. While 5G internet holds promise to be 100x faster than that of 4G, it comes at the cost of heavy infrastructure spend.
Also, the 5G signal can barely cover a 50 feet radius from the antenna, and its strength is further diminished on passing through walls or glass. The telecom operators are working on rolling out 5G in dense metropolitan centres, but the mobile phone makers are lagging behind in rolling out 5G compatible smartphones. In the last earnings call, Apple CEO Tim Cook refused to provide any guidance whatsoever on their 5G plans, even while hinting at the wide range of other products they have in development. In addition, among the Android device makers, the speed of adoption is slower than market expectations. We can take these as indications that the capital investment will lag expectations and hopes, and perhaps that companies like Apple do not yet have the confidence that consumers are going to plunge into the pricier phones.
However this is resolved, the semiconductor stocks are too richly priced and probably too far ahead of the market on 5G. The VanEck Semiconductor (SMH) ETF’s biggest holding, Taiwan Semiconductor (12.94% of assets), is trading at a 22.9x trailing PE, while Texas Instruments (TXN), it's third biggest holding, is priced at 23.5x trailing PE. Fourth largest holding Nvidia (NVDA) has been richly valued ever since cryptos took off, and it continues to be richly valued at 42.1x trailing PE.
The chart above depicts a rising wedge formation - a rising but narrowing price channel - on diminishing momentum and volumes that suggests a petering out of the trend in recent months, which has so far ignored some of the negative fundamentals that have shown up in the sector this year.
Stay ahead of the masses,
Seth Maniscalco
Owner, Modern Wealth Management LP
Owner, Modern Wealth Management, LLC
The semiconductors sub-sector has handily beaten the tech heavy Nasdaq 100 index this year, which incidentally is the best performing broad index this year. The gains come on the back of 5G hype. While 5G internet holds promise to be 100x faster than that of 4G, it comes at the cost of heavy infrastructure spend.
Also, the 5G signal can barely cover a 50 feet radius from the antenna, and its strength is further diminished on passing through walls or glass. The telecom operators are working on rolling out 5G in dense metropolitan centres, but the mobile phone makers are lagging behind in rolling out 5G compatible smartphones. In the last earnings call, Apple CEO Tim Cook refused to provide any guidance whatsoever on their 5G plans, even while hinting at the wide range of other products they have in development. In addition, among the Android device makers, the speed of adoption is slower than market expectations. We can take these as indications that the capital investment will lag expectations and hopes, and perhaps that companies like Apple do not yet have the confidence that consumers are going to plunge into the pricier phones.
However this is resolved, the semiconductor stocks are too richly priced and probably too far ahead of the market on 5G. The VanEck Semiconductor (SMH) ETF’s biggest holding, Taiwan Semiconductor (12.94% of assets), is trading at a 22.9x trailing PE, while Texas Instruments (TXN), it's third biggest holding, is priced at 23.5x trailing PE. Fourth largest holding Nvidia (NVDA) has been richly valued ever since cryptos took off, and it continues to be richly valued at 42.1x trailing PE.
The chart above depicts a rising wedge formation - a rising but narrowing price channel - on diminishing momentum and volumes that suggests a petering out of the trend in recent months, which has so far ignored some of the negative fundamentals that have shown up in the sector this year.
Stay ahead of the masses,
Seth Maniscalco
Owner, Modern Wealth Management LP
Owner, Modern Wealth Management, LLC