Chips shares took a beating last year. A halfhearted rebound in the final months staved off the second-worst annual performance on record. But even a huge reduction in earnings expectations doesn’t change the fact that the sector is now trading around historic lows, leaving investors trying to figure out whether to wade back in.
The 30-member Philadelphia Semiconductor Index (SOX) dropped 36% in 2022, the biggest decline since 2008. If not for a 28% rebound, which was reversed in recent weeks, the gauge may have even surpassed the 48% drop back then. The fact that the rally fizzled out raises the question of how cheap they’ll get.
What’s given investors moments of fleeting hope is the belief that the semiconductor industry is in the midst of a once-in-a-generation revival. A shortage spurred by the Covid-19 pandemic showed the world what executives had already known: Chips are needed in everything from cars to warheads, and that hunger will only grow.
The US’s ongoing strategy to cut China off from leading-edge technology has spurred Beijing to double down on its own plans to build a self-sufficient industry. Meanwhile, politicians in Washington, Tokyo and Brussels have been offering sweeteners to get key players to set up shop. The most sought-after, Taiwan Semiconductor Manufacturing Co., announced expansions in the US and Japan over the past couple of years while remaining tight-lipped on any plans for Europe. TSMC is also pushing ahead with building more at home, recently unveiling its latest facility in southern Taiwan.
