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It's Time To Add Semis Back Into Your Portfolio

Daniel Laboe

Semiconductors have been in a period of negative growth since mid-2018 into 2019 due to the cyclical nature of the sector. Semis are just now beginning to rise from their cyclical ashes creating some cultivating opportunities.

The space is ready to heat back up with resumed hyperscaling and 5G developments. Below are a few stock prospects for semi’s jump back into growth.

Broadcom AVGO

Broadcom has been on my investment horizon since their shrewd acquisition of CA Technologies, an IT management software & solutions company, back in July of 2018, which created a potent buying opportunity following its dip. This cross-sector acquisition turned this once pure-play semiconductor firm into an infrastructure technology conglomerates, allowing the firm to enjoy economies of scope.


Broadcom became the second-largest publicly traded semi company by market capitalization after its combinations with Avago in 2016 (hence the ticker AVGO). This firm has been able to consistently outperform the semi market, with its savvy acquisitions and its first-class R&D team that is able to push out needed innovations perpetually.

Broadcom’s claim to fame is its wired infrastructure used in data centers and embedded network infrastructure. Mobile chips make up the second-largest segment, with Apple being this segment’s single largest customer.

Next Deal

Broadcom is now in the process of purchasing Symantec SYMC, a cybersecurity firm. This will further expand the firm’s scope beyond the semiconductor space and shield it from some of that sector’s cyclicality.

Management’s ability to see and execute intelligent acquisitions with seamless integration, all while organically growing the business, gives me immense confidence in their leadership. Hock Tan has been CEO of Broadcom since 2006 IPO and has driven stock returns of over 1,400% since the company went public in 2009.

This firm has shown extraordinary resilience to the semiconductors’ cyclical downturn with consistent year-over-year topline growth since the firm went public. I expect this growth to accelerate as data center scaling and mobile sales escalate.


AVGO has been in a slump over the past 6 months as investors weigh the synergies and cost of the Symantec purchase. I believe that the rational management team knows what they are doing, and it’s only a matter of time before a rally in this stock begins.

I have one technical concern with the stock’s current level. Looking at the chart below, you will notice that the 50-day moving average (red) just crossed the 200-day moving average (green), which traders call the “death cross.” The death cross could be a sign of a further downside, but looking at the company’s fundamentals, I am not entirely confident in that technical indicator.

AVGO is trading below at a forward P/E of 12x, which is roughly the lowest valuation that AVGO has had in the past 5 years. The stock is trading below its industry average and the broader market.

This stall in share price has created an opportunity to jump into this semiconductor leader with a management team that I would follow into battle. AVGO has some short term volatility risk, but ample long-term potential.

Other Semi Bets

AMD AMD has had a hell of a run with a 5-year share price appreciation of close to 1000%. CPUs and GPUs are the firm’s largest segment. AMD is competing with semi powerhouses like Intel INTC and Nvidia NVDA for market share. They have succeeded in taking some market share from both through their aggressive pricing model.

The aggressive pricing has caused AMD to toe the line of profitability continuously. Investors love AMD, but I am not as convinced, primarily when reflecting on its forward P/E of 29x, considerably above its industry average. Analysts are predicting accelerated topline growth and margin expansion if this company can continue to take market share. AMD is a stock to keep an eye on.

My favorite semiconductor stock is Nvidia NVDA, and any price below $200 looks good to me. This firm’s GPU capabilities are unmatched by any in the business and are going to take data center, gaming & VR as well as artificial intelligence to the next level. Nvidia is effectively the only GPU in data centers today because of its top-notch functionality that no other firm has been able to match.

Nvidia’s leadership in gaming is expanding, with its VR and cloud platforms being on the forefront. GeForce Now, NVDA’s cloud gaming platform is still in the beta stage, but analysts and forums are saying this is going to be THE cloud gaming platform of the future. NVDA is a robust long term buy.

Take Away

The cyclical semiconductor industry is on an upswing, and it is time to add your favorite chip companies back into your portfolio. Above are some of my top chip picks and ones to keep an eye on.


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