Applied Materials, Brooks Automation: Stocks That Benefit From The Semiconductor Crunch

by Trefis Team
Applied Materials
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The semiconductor industry has been facing a severe supply crunch, driven by surging demand from the consumer electronics industry through Covid-19 and supply-side disruptions including a fire at a fabrication unit in Japan, the freezing weather in the southern United States, and drought in Taiwan. The auto industry is bearing the brunt of the shortfall, with OEMs including Toyota, Volkswagen, and GM having to scale back on production due to a lack of chips, and consumer electronics majors such as Apple are also beginning to feel the pinch. That said, there are a set of companies that stand to benefit from the current shortfall in chip production. For example, semiconductor players who have their own fab capacity stand to gain, as they could see higher price realization without seeing their costs escalate. Moreover, companies that produce tools and machinery for chipmaking should also benefit, as chipmakers expand budgets in order to add more production capacity. For example, Taiwan’s  TSMC said it will spend about $100 billion over the next three years to boost capacity, while Samsung Electronics plans to invest $116 billion into boosting production by 2030. Our theme on Stocks That Benefit From The Semiconductor Shortage has returned 32% year-to-date, compared to a return of 12% for the S&P 500. Below is a bit more about some of the stocks in our theme and how they have been performing this year.

Applied Materials (AMAT) supplies equipment, services, and software used in the production of semiconductor and display products. The stock has been the strongest performer within our theme, rising about 56% year-to-date, driven by strong demand for semiconductor equipment, and increasing production complexity in the industry.

Brooks Automation (BRKS) provides automation, vacuum, and instrumentation equipment for markets including the semiconductor and life sciences industry. The stock is up by about 46% year-to-date as the company is seeing higher demand for its products from the semiconductor space driven by the trends such as the Internet of Things, 5G wireless technology, and machine learning.

KLA Tencor (KLAC) is another supplier to the semiconductor production space, focused on process control and yield management solutions. The stock is up by about 25% year-to-date, driven by the current chip shortage, and calls from the U.S. government to strengthen the American semiconductor manufacturing industry.

Intel (INTC), one of the largest microprocessor makers, is also likely to benefit from the current supply crunch as it operates its own fabs, unlike rivals such as AMD and Qualcomm who are dependent on third parties. The company also recently indicated that it was in talks with companies that design chips for carmakers to produce their chips at Intel foundries. The stock is up 18% this year.

Want upside from growing digitization post-Covid-19 but don’t want to pay a big premium for tech stocks? Check out our theme on Value Tech Stocks

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