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Despite a recent rocky move for equities, the semiconductor space should remain in the spotlight and help refocus views on the strong AI backdrop. We expect near-term cyclical drivers such as semiconductor inventory destocking combined with multi-year secular themes around AI compute and data center growth to provide further support for the space and additional upside for chip stocks.

Since the start of 2023, semiconductor stocks have been on a tear, with the Philadelphia Stock Exchange Semiconductor Index, a proxy for the semiconductor industry, surging +87%, surpassing the S&P 500’s gain of +32% by nearly threefold.1 And despite industry revenues falling -8.2% in 2023 compared to record levels in 2022, the semiconductor index actually posted its highest annual return in 2023 since 2009 (Exhibit 1).2 Still even with this notable move higher, we think a combination of near-term cyclical drivers and longer-term secular trends could continue to support semiconductor stocks.

Exhibit 1: The semiconductor index returned 65% in 2023, its best annual return since 2009

From a cyclical perspective, inventory levels – which have been elevated post pandemic re-stocking – have come into better balance in recent quarters.3 Total inventory days across producers/manufacturers, distributors, and customers, have collectively declined by 20 days since Q2 2023 though, inventory still remains 58 days, or ~25%, above the longer-run median (Exhibit 2).4

Exhibit 2: Inventory has normalized in the last two quarters, but remains ~25% above longer-run median

We may still be in a period of structurally higher inventory – although we remember all too well the shortages during the pandemic global supply chain disruptions – but signs point to further normalization as chip demand enters an upcycle. Semiconductor demand tends to be highly correlated with manufacturing surveys, and with the ISM manufacturing recently entering into an expansion, this should be a positive for chips (Exhibit 3).5 Despite the revenue decline in 2023 as we noted, growth of 6-8% is expected in 2024 as inventories further decline and shipments further match demand.6

Exhibit 3: Recent move in ISM manufacturing should be a positive for semis given the strong correlation

Now from a secular perspective, the industry is also benefiting from a number of multi-year themes. For example, demand for AI compute, data centers, 5G connectivity, electric vehicle adoption and autonomous driving are all significant future growth drivers for the industry. Beyond this year, industry revenues are now forecasted to double by 2030, reaching around $1.1 trillion, driven by robust growth in the automotive, data storage, and industrial electronics end-markets. These markets are expected to make up ~40% of the overall revenue mix by 2030, up from around 25% in 2020.7

Exhibit 4: Global semiconductor revenue is projected to double by 2030 and reach around $1.1 trillion

With these cyclical and secular forces at play, we anticipate further upside for stocks in the chip space. However, valuations for many of these semiconductor names are relatively high. The forward earnings ratio on the Philadelphia Stock Exchange Semiconductor index is currently in the 93rd percentile over a five-year lookback with the median name showing a forward earnings ratio that’s in the 89th percentile (Exhibit 5).8

Exhibit 5: Semiconductor valuations remain elevated, currently in the 93rd percentile over the past 5-years

Given that valuations are stretched and a number of potential concerns, (geopolitics, elections, delayed rate hikes, divergent fortunes of various semiconductor companies given the varying impact of the AI cycle), we would look to structured investments to gain exposure in a more risk managed way. For example, investors may want to use structures with downside protection or buffers to better manage those concerns, while still participating in the upside. And current options market dynamics can help enable this opportunity. Or, investors may wish to narrow down the list of semiconductor beneficiaries by opting for a custom index versus a broad ETF, and these indices are increasingly available.

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1. Bloomberg, iCapital Investment Strategy, as of April 24, 2024. Note: Return period is Dec. 31, 2022 thru April 16, 2024.
2. Bloomberg, World Semiconductor Trade Statistics, iCapital Investment Strategy, as of April 24, 2024.
3. Morgan Stanley, “Semiconductor Inventory Tracker” as of March 18, 2024.
4. Morgan Stanley, “Semiconductor Inventory Tracker” as of March 18, 2024.
5. Bloomberg, iCapital Investment Strategy, as of April 24, 2024.
6. JPMorgan Research, as of April 1, 2024.
7. Gartner, William Blair, McKinsey, iCapital Investment Strategy, as of March 2023.
8. Bloomberg, iCapital Investment Strategy, as of April 24, 2024.


The Philadelphia Stock Exchange Semiconductor IndexSM is a modified market capitalization-weighted index composed of companies primarily involved in the design, distribution, manufacture, and sale of semiconductors.

S&P 500: The S&P 500 is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 of the top companies in leading industries of the U.S. economy and covers approximately 80% of available market capitalization.


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Anastasia Amoroso

Anastasia Amoroso

Anastasia Amoroso is a Managing Director and the Chief Investment Strategist at iCapital. In this role, she is responsible for providing insight on private and public market investing opportunities for advisors and their high-net-worth clients. Previously, Anastasia was an Executive Director and the Head of Cross-Asset Thematic Strategy for J.P. Morgan Private Bank, where she identified and invested in emerging technologies and disruptive trends such as artificial intelligence, decarbonization, and gene therapy. She also developed global tactical ideas and implemented institutional-level implementation across asset classes for clients. Anastasia regularly appears on CNBC and Bloomberg TV and is often quoted in the financial press. See Full Bio.

Peter Repetto

Peter Repetto

Peter is a Vice President and Investment Strategist at iCapital, focusing on developing and delivering research, investment ideas, and thought leadership content for external and internal audiences on behalf of iCapital’s Investment Strategy team led by Anastasia Amoroso, Chief Investment Strategist. Prior to joining the firm, Peter spent over eight years at Franklin Templeton Investments, where he contributed to their asset allocation strategy and macroeconomic research. Peter holds a BA in Economics from Fairfield University.

Nicholas Weaver

Nicholas Weaver

Nicholas is an Associate and Investment Strategist at iCapital, responsible for providing insights into investment opportunities across public and private markets. He works alongside Anastasia Amoroso, Chief Investment Strategist at iCapital. Prior to joining iCapital in 2021, Nicholas spent time as an analyst at a buy-side investment firm, where he contributed to equity and private market research. Nicholas holds a Bachelor of Science degree with a double major in Finance and Business Analytics & Information Technology (BAIT) from Rutgers University.