Tremendous growth in software functionality has only been enabled by tremendous growth in semiconductor performance...
U.S. equity market returns over the last several years has been driven by the performance of a select group of large cap information technology and Internet stocks that have come to be known as the FAANGs, for Facebook, Amazon.com, Apple, Netflix and Google (now known as Alphabet). Our investment teams have shared concerns about the crowding effect that the outlier performance of this group has created. While these companies possess unique business models and maintain strong long-term growth potential, we believe more attractive current opportunities may be found in looking beyond the FAANGs to other areas of technology, such as semiconductors.
Read an excerpt of the complete commentary below, or download the entire investment commentary as a PDF.
- We estimate that the overall semiconductor market will grow 17% in 2017, well above its long-term average of 3%–-4%. While we share in the excitement of multiple new technology trends that can drive excess growth (artificial intelligence, the Internet-of-things, or self-driving cars), they still represent a small part of a very large and mature industry.
- We are cautious in our overall view of the semiconductor cycle, although we believe there are several semiconductor stocks that have a combination of defensive, counter-cyclical, and secular growth opportunities that will allow them to outperform even in the event of a cyclical correction in the space.
- We also see some growth pockets that we believe can be counter cyclical. For example, Apple is expected to launch three iPhone models in the next few months, which we believe will drive an upgrade cycle across the Apple installed base. Broadcom, a supplier of RF filters in the iPhone, is expected to have 40% more content in the new models compared to the iPhone 7/7+, which should allow the company to sustain growth even in the face of an industry downturn.
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