How to invest in semiconductor companies? [Guide]

The semiconductor industry will be essential in the coming revolution. Why and what is this really all about? How to invest in semiconductor companies? We decided to look at these topics. But let's start from the beginning.

In recent years, the global economy has experienced another wave of digitization. Today, smartphones have become the main source of internet use in Africa, India and other Asian countries. Thanks to the increase in computing power of computers, research into artificial intelligence and machine learning has flourished. Additionally, more and more commerce and services are moving to the internet. This requires a hardware upgrade. New chips are necessary to take the next step in human development. After all, another revolution awaits just around the corner - 5G, which is to change many industries. 

An investor does not have to be a specialist in chips, methods of their production, or have experience in implementing 5G projects to be able to benefit from them. The last decade has belonged to companies from the semiconductor industry. It is very possible that the following years will also be a period of dynamic development of this type of companies. Of course, this does not mean that the acquired company operating in this industry will bring above-average profits. However, it is worth having companies operating in this market on your radar, because in the event of market panic, many of them may be traded below their intrinsic value. 

Largest listed semiconductor companies

Broadcom

The company's history dates back to 1961, when Hewlett-Packard separated a division dealing with semiconductors. Over time, the division developed into a separate company called Agilent Technologies, which sold chip production to the KKR fund in 2005. As a result, a company was established Avago Technologies. A milestone in the company's development took place in 2015, when the acquisition was announced Broadcom Corporation for $ 37 billion. Broadcom products are semiconductors and software that are used in data centers, home connectivity, telecommunications equipment, relay stations, power generation and even smartphones. Examples of products include adapters, controllers, optical sensors and switches. Revenue from the semiconductor segment accounts for more than 75% of total sales. The software includes, among others database management software or identification software (useful in home automation). Broadcom also offers payment security solutions.

Broadcom stock chart, interval W1. Source: xNUMX XTB.

NVIDIA

The company was founded in 1993 by Jensen Huang, who is of American-Taiwanese origin. nVidia operates in two segments: Graphics and Compute & Networking. The first segment, as the name suggests, is the production of graphics cards (GeForce). Another offer is GeForce Now, a game streaming service. In addition, this segment also includes graphics cards from the Quadro / NVidia RTX family. This type of cards has increased efficiency when working with applications from the CAD (computer aided design) family. The second segment includes products that are used in industries such as data centers, robotics and automotive. As an example, you can mention dedicated graphics processors for data centers, which allow you to speed up procedures related to AI, Deep Learning or HPC (High-performance computing). NVidia employs approximately 19 people. The current capitalization of the company is approximately $ 000 billion.

NVidia stock chart, interval W1. Source: xNUMX XTB.

Intel Corp.

Intel was founded in 1968 by Gordon Moore and Robert Noyce. Gordon Moore is the author of the famous "Moore's Law" which said that the number of transistors in an integrated circuit doubles approximately every two years. In 1971, Intel became the largest manufacturer of microprocessors in the world. By 2017, Intel was the largest chip maker in terms of revenue. Last year, Intel was overtaken by Samsung. Intel's largest business segment is Client Computing Group (CCG)which in 2021 generated $ 41 billion in revenues. The next in terms of size is DataCenter & AI (DCAI)which in 2021 achieved sales of $ 22,7 billion. It is the most important in the remaining segments NEX (Network and Edge Group), which generated $ 8 billion in the previous fiscal year. Intel is currently developing the 10 and 7nm chip segment. The current capitalization of the company is approximately $ 190 billion.

INTEL stock chart, interval W1. Source: xNUMX XTB.

AMD

The company was founded in 1969 by Jerry Sanders. The founder managed the company until 2002. Lisa Su has been managing the company since 2014. It is Intel's main competitor for the production of processors for personal computers. In addition, it is also one of the largest manufacturers of graphics cards. AMD is in the market GPU (graphics processing unit) i CPU (central processing unit). The company's products include AMD Ryzen microprocessors, which are used, among others, in in laptops and desktops. AMD is also a GPU manufacturer for data centers (AMD Instinct). AMD is also a producer of processors used in AMD EPYC servers. The most important segment of the company is Computing and Graphics, which is responsible for over $ 9,3 billion in revenues. The second segment is Enterprise, Embedded and Semi-Customwhich generated $ 7,1 billion. The current capitalization of the company is approximately $ 145 billion.

AMD stock chart, interval W1. Source: xNUMX XTB.

Qualcomm

The company was founded in 1985. It is a global leader in the development and commercialization of technologies related to wireless communication. The company's solutions are used, among others mobile phones or other devices communicating wirelessly. An example is home automation devices. A very dynamic segment using Qualcomm's solutions is automotive sector, Czy IoT hardware. Qualcomm is benefiting from the trend to shift from 3G and 4G to 5G. For example, in 2027, 70% of cars will use wireless communication (including 5G). In 2020, the percentage of cars with such functionality was 55%. The most important segment for Qualcomm is Handsets, which includes the sale of smartphone solutions. The main customers of this segment are Samsung, Xiaomi and Oppo. This segment accounted for $ 16,8 billion in the company's revenues. The next largest segment is IoT, which generated $ 2021 billion in revenues in 5.

Qualcomm stock chart, interval W1. Source: xNUMX XTB.

Texas Instruments

Texas Instruments was founded in 1951 following the reorganization of Geophysical Service Incorporated. The company has a wide range of products. According to the information contained in the annual report, Texas Instruments manufactures approximately 80 products used in electronic devices. The largest segment of the company is the so-called Analog Semiconductors. This segment generated approximately $ 000 billion in 2021. Among the solutions classified as "analog" you can include, among others solutions for the control of energy in devices. The solutions include: AC / DC power controllers, switches. In addition, the company also has a segment Embedded Processingwhich generates over $ 3 billion in revenues. This segment includes, among others, sale of microcontrollers and DSP (digital signal processors). Texas Instruments emphasizes that for the company, apart from creating the best solutions on the market, there is an increase in free cash flow per share (FCF per share). According to the management board, FCF per share is the main creator of the company's value. In the years 2004-2021, Texas Instruments increased free cash flows per share at the rate of 12% per year.

Texas Instruments stock chart, interval W1. Source: xNUMX XTB.

KLA Corporation

KLA Corporation is a significant player in the semiconductor market. The company provides solutions that help to control re-production processes, including chips. KLA solutions are used, among others down testing boards or integrated circuits. The company generates revenues from the sale of equipment for their maintenance and the sale of spare parts. An additional service is the training of employees of chip factories. The company is very strong in the market metrological (e.g. metrological sampling), where KLA has a 55% market share. The company's products help chip manufacturers with design, testing and mass production. KLA Corporation also offers monitoring systems that check the quality of products at various stages of production. This increases the ROI (return on investment) of chip manufacturers. In addition, they also have software that allows you to simulate the quality of the components of the final product without having to print it. The company's largest customers are TSMC and Samsung, which are one of the largest chip manufacturers in the world. The key markets are Mainland China (26% of revenues), Taiwan (25%) and South Korea (19%).

KLAC stock chart, interval W1. Source: xNUMX XTB.

Investing in stocks and using ETFs

One of the simpler solutions is to buy shares of companies in the semiconductor industry. However, if anyone is concerned about that "Bet on the wrong horse", has the opportunity to invest in the entire basket of companies operating in this industry. The current revolution ETFs made it possible for an ordinary investor to invest in a really wide range of industries. The US market has ETFs that give exposure to the semiconductor industry. One of the flagship examples is iShares Semiconductor ETF. It is through, inter alia, such an ETF can be invested in companies from the semiconductor industry.

The aforementioned ETF was established in mid-2001. iShares Semiconductors has been one of the best investments in the last 10 years. The average annual rate of return on the ETF during this period was 24,5%. By comparison, the S&P 500 achieved an annual average return of 14,5% over the same period. This ETF is popular with investors. At the end of April, iShares Semiconductors had $ 7,4 billion in amass. The ETF is quite expensive for American terms. The total cost of the fund (TER) is 0,43% per annum. The benchmark for the ETF is the ICE Semiconductor (TR) index. At the end of April, the ETF currently comprises 30 companies.

Where to invest in stocks of semiconductor companies and ETFs

An increasing number of forex brokers have quite a rich offer of stocks, ETFs and CFDs for these instruments.

For example on XTB Today, we can find over 3500 equity instruments and 400 ETFs, a Saxo Bank over 19 companies and 000 ETF funds.

Broker
End	Poland	Denmark	Cyprus *
Number of exchanges on offer	16 exchanges	37 exchanges	24 exchanges
Number of shares in the offer	approx. 3500 - shares circa 2000 - CFDs on shares	19 - shares 8 - CFDs on shares	approx. 3 - CFD on shares
The amount of ETF on offer	approx. 400 - ETF approx. 170 - CFD on ETF	3000 - ETF 675 - CFD on ETF	approx. 100 - CFD on ETF
Commission	0% commission up to EUR 100 turnover / month	according to the price list	Spread depends on the instrument
Min. Deposit	PLN 0 (recommended min. PLN 2000 or USD 500, EUR)	0 PLN / 0 EUR / 0 USD	PLN 500
Platform	xStation	SaxoTrader Pro Saxo Trader Go	Plus500 platform
	REVIEW	REVIEW	REVIEW
	CREATE AN ACCOUNT	CREATE AN ACCOUNT	CREATE AN ACCOUNT

* PLUS500 CY offer

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. From 72% to 89% of retail investor accounts record monetary losses as a result of trading CFDs. Think about whether you understand how CFDs work and whether you can afford the high risk of losing your money.