Oil was the commodity for the 20th century…
It powered armies, enabled modern flight, and was critical for industrial production across the globe.
Wars have been fought on multiple continents for control over it. And until recently, oil’s appeal as a relatively cheap and reliable source of energy hasn’t waned.
But we now live in the 21st century. It’s the era of the Internet… electric vehicles (“EVs”)… and artificial intelligence (“AI”).
Today, semiconductors power technological advancements instead of oil. These tiny chips regulate the flow of electric current in today’s modern devices.
In fact, the world is likely now more dependent on chips than it is on oil…
Without semiconductors, modern oil wells, refineries, and crude tankers would just grind to a halt. And good luck getting gas out of the pump to fill your car.
It’s no surprise then that the world now values semiconductors more than oil. Take a look at the recent market caps of the top 10 companies in each category…
Combined, the world’s 10 largest oil companies are worth about $3.6 trillion. Meanwhile, the 10 largest chipmaker and chip-related companies combined are worth roughly $4.3 trillion.
In fact, chip stocks have become one of the best-performing corners in the market…
Nvidia (NVDA) has been the poster child in the financial media for big gains. It’s up more than 200% over the past year alone.
More broadly, the VanEck Semiconductor Fund (SMH) – of which Nvidia is the top holding – has soared nearly 60% in the past year. And it looks like it has more room to run.
The reason is simple. New technologies continue to drive bigger demand for chips.
For example, in 2021, semiconductor unit sales hit a record 1.15 trillion shipments. That’s good for about 145 chips for every person on Earth.
Five years before that, it was just 116 chips per person. And back in 2000, when the Internet was just hitting mainstream, it was only 65 chips per person.
Looking ahead, semiconductor demand will be driven by the boom in AI and EVs, plus everything that goes into supporting them.
Computers, smartphones, vehicles, and even appliances are being equipped with AI at a rate that will see it account for 20% of the global semiconductor industry by 2027. By then, AI chips are estimated to be worth more than $110 billion per year.
So what does that mean for investors?
Here at Chaikin Analytics, the Power Gauge went “bullish” on SMH back in January 2023 and caught this nearly 60% move up.
And as you can see in the screenshot below, our system remains “very bullish” on SMH today…
Right now, SMH holds 21 “bullish” or better stocks. And it doesn’t have any “bearish” or worse holdings. Looking ahead, that’s a great sign…
The Power Gauge still sees opportunity ahead in this red-hot corner of the market. If you missed the big gains over the past year, it’s not too late to put money to work.
Good investing,
Vic Lederman
