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How You Can Ride on the Semiconductor Market’s Growth

Demand in the semiconductor market can be volatile over the short-term. According to the World Semiconductor Trade Statistics, the worldwide semiconductor market rose 21.6% in 2017. In 2018, however, growth is forecast to slow down to 15.7%.

Such cyclicality is normal for the semiconductor industry. Investors who are investing in semiconductor-related stocks should look at the long-term trends instead.

Investors can learn about growth trends in the industry by looking at large semiconductor manufacturers. Taiwan Semiconductor Manufacturing Company Limited, or TSMC, is the world’s largest dedicated semiconductor foundry. I recently looked at what the company had to say about the semiconductor industry’s growth in its 2018 second-quarter earnings conference call transcript.

TSMC’s chief executive and vice chairman, C.C. Wei, mentioned the following about growth in artificial intelligence (AI) and 5G communication:

“[W]e are optimistic about the development of the industry’s mega trend, particularly AI and 5G communication.

Recently, we have observed more promising development. For example, we see AI continues to fast proliferate from data center to edge server and to end client devices. As for 5G, major operators in several countries have roll out the development schedule, while multiple ODMs [original design manufacturers] and IC [integrated circuit] vendors have planned their 5G products, which are set to ramp in the coming 2 years. Despite the slowing unit growth in smartphones in the near term, we expect the development of 5G while [sic] fuel the next wave of smartphone growth both in units and in silicon content.”

There is also growth in high-performance computing (HPC), which is the combination of computing power to deliver higher performance than one could get out of a typical desktop computer.

Wei explained how HPC could grow in the years ahead:

“In HPC, we expect the increasing workload in data center and complexity of AI will boost the demand for AI accelerator, GPU [graphics processing unit] and CPU [central processing unit] in server. We also expect the introduction of next-generation video gaming will add growth of HPC.”

The rise of self-driving cars could also mean that HPC will be in demand.

In Singapore’s stock market, there are five companies that are in the semiconductors and semiconductor equipment space. The largest three by market capitalisation are UMS Holdings Limited (SGX: 558), Micro-Mechanics (Holdings) Ltd (SGX: 5DD), and AEM Holdings Ltd (SGX: AWX).Source: SGX StockFacts (data as of 2 October 2018)

One of Singapore’s richest men, Peter Lim, once said in an interview that his secret to investing is investing in sectors with good prospects. As such, investors looking to ride on the growth of the semiconductor industry can check out those three companies mentioned above.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Micro-Mechanics and AEM. Motley Fool Singapore contributor Sudhan P owns shares in Micro-Mechanics.