The underlying fundamentals in the semiconductor chip market are currently quite favorable.
As everyone who follows the industry knows, everything is all about supply and demand. When demand is high and supply is low, chip prices are high and chipmakers have huge profit margins. Conversely, when demand is low and supply is high, chip prices are low and chipmakers have low profit margins.
It really is that simple.
Right now, demand is high and supply is low in the chip-market. The mainstream emergence of cloud data-centers, the Internet-of-Things (IoT), automation, artificial intelligence and high-end gaming has created a robust demand backdrop for semiconductor parts. But the increasing complexity of those parts has simultaneously created a lack of supply.
Big demand plus small supply equals great times for chip stocks. That is why semiconductor ETFs like iShares PHLX Semiconductor ETF (NASDAQ:SOXX) and Market Vectors Semiconductor ETF (NYSEARCA:SMH) have steadily out-performed the market over the past year. They are both up more than 25% over the past 12 months, versus a 12% gain for the S&P 500.
This out-performance could continue.
Demand isn’t showing any signs of wavering. Meanwhile, chip complexity is only increasing, and that should continue to keep supply relatively constrained. As such, chip stocks could stay hot.
With that in mind, here are chip stocks which have been red hot over the past 12 months — and should stay that way.