As the digital transformation picks up pace, the demand for semiconductors is increasing because they are a critical component in advanced technological devices. The semiconductor industry is seeing huge demand from the electric vehicles (EV) industry also. This heightened demand is driving up chip prices, which we think should result in solid upside for semiconductor stocks such as ON Semiconductor (ON), Diodes (NASDAQ:DIOD), and Vishay (VSH). So, let’s pore over these names.The mainstream adoption of remote working due to its convenience and efficiency, along with the ongoing digital transformation, are increasing the demand for semiconductors. Semiconductors form the backbone of most advanced technological devices. The semiconductor industry is also witnessing increasing demand from the electric vehicles (EV) industry. While supply constraints are impacting the industry, the strong demand environment is allowing companies to raise prices for their chips and generate substantial profits. And, investors’ increasing interest in the semiconductor industry is evident in the SPDR S&P Semiconductor ETF’s (XSD) 6.7% gains over the past month versus the SPDR S&P 500 Trust ETF’s (SPY) 3.2% returns.
Many semiconductor companies are ramping up their production to meet the rising demand for chips. In fact, the industry is benefiting from government and private investments worldwide to expand production capacity. According to The Goldman Sachs Group , Inc. (NYSE:GS), the chip shortage is expected to decline in the second half of the year.
The industry is expected to continue growing due to increasing demand for chips with the growing adoption of advanced technologies, such as internet of things (IoT), 5G, and artificial intelligence (AI). According to a Fortune Business Insights report, the global semiconductor market is expected to grow at an 8.6% CAGR between 2021 - 2028. Given this backdrop, we think it could be wise to bet on fundamentally strong semiconductor players ON Semiconductor Corporation (ON), Diodes Incorporated (DIOD), and Vishay Intertechnology, Inc. (NYSE:VSH).