In the semiconductor industry, improvement from the darkest days in the spring of 2020 does not appear to be mirroring past recoveries, including the bounce-back from the global financial crisis of 2007–2009, according to Adam Benjamin, co-manager of Fidelity Select Semiconductors Portfolio (FSELX).
“This recovery is different because we’re seeing a group of ‘haves’ and ‘have nots,’” he says.
In past recoveries, investors tended to gravitate toward semiconductor stocks with lower price-earnings (P/E) ratios, buying them in anticipation of economic improvement, according to Benjamin.
Yet this year, many chipmakers with ties to end markets such as autos and smartphones continue to trade at lower valuations, he notes.
Conversely, there’s surging customer demand for companies that make chips for cloud-based infrastructure, e-commerce applications, and the hardware behind streaming services—each of which has gained as more people work from home due to limiting the spread of COVID-19.
As a result, Benjamin says, investors are evaluating chip stocks based on the end-market exposure and company-specific fundamentals of the underlying businesses.
“This had led to a stockpickers’ market in which I’m trying to find growth names and not overpay for them,” he says.
Two names Benjamin has favored are Marvell Technology Group (MRVL) and Nvidia (NVDA). The investment thesis: Marvell has exposure to 5G infrastructure and cloud/data centers, as well as a burgeoning auto opportunity, while Nvidia’s strengths are in gaming and artificial intelligence solutions, including autonomous driving.
“Each is tied to secular themes where I see potential for continued growth,” he says.
Fidelity® Select Semiconductors Portfolio held securities mentioned in this article as of its most recent holdings disclosure. For specific fund information, including holdings, please click on the fund trading symbol above.
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