The Volatile Nature of Semiconductor Stocks

Just like any other industry, semiconductor industry also goes through its boom and depression cycle every once in a while. Semiconductor companies’ main job is to design and/or manufacture computer chips and related components. But as they are involved in the manufacturing operations of semiconductors and chips the demand for their product is dependent on several other factors. Today the global semiconductor industry is valued at approximately 433 billion U.S. dollars. Leading companies in the field of semiconductor such as Intel, Nvidia, AMD, Samsung Industries and others are anticipating growth in the market size in upcoming days. Many of these semiconductor companies has their stocks listed in several stock markets. Stock markets are volatile in nature is not something new for those who are aware of the ups & downs of the market. But specially the semiconductors stocks quite volatile in nature as there are quite a huge number of factors affecting the demand and supply.

Semiconductors are used in almost every industry, electronic gadget, and devices. The semiconductor market is a key sector to watch because semiconductor chips play a vital role in new technologies. If the demand for smartphones or computers goes down, the demand of semiconductors too goes down. The huge chunk of semiconductor demand comes from smartphone and computer manufacturers. Thus, changes in the demand of these items leads to increase or decrease of semiconductor stocks. Advanced Micro Devices (AMD), Inc., Qorvo (QRVO), Qualcomm (QCOM), Nvidia (NVDA) are some of the leading stocks as of now. Apart from the demand of devices which uses semiconductors, there are other factors too which affects the semiconductor stocks.

The recent developments in the 5G technology is one such reasons which is affecting the semiconductor stocks globally. Companies like Qualcomm are eyeing a growth in their market share as the 5G is almost available to roll out in many countries. Another factor can be advancement in GPU development. Nvidia is one such company which is a notable leader in the field of GPU development and research. So, if there is an acceleration in the GPU computing capacity it will directly affect the stock prices of Nvidia. Apart from these there are several other reasons too because of which the semiconductor stocks are considered too volatile to trade into. External factors such as trade regulations affects the market severely. Like the current tension between USA-China has pushed several semiconductor companies on both the sides of the world into a dark alley. In 2019, global semiconductor sales dropped 11.9% to $418.3 billion. Covid-19 has also impacted the Semiconductor stocks, pushing them down by up to 3-5%. Market experts were hoping that in 2020 the semiconductor industry will show the signs of recovery from the downfall in preceding years but 2020 resulted in even a worse year, hurting almost every major and minor semiconductor company, crashing the sales and profit as well as driving the stocks down significantly.

Thus, it is crucial to watch these stocks very closely and keep an eye on the factors which can affect them. According to experts, developments in the field of artificial intelligence, advancements in network mobility, self-driving technology are some of the key factors which can affect the semiconductor stocks in the nearby future. So, it is advisable to both, the semiconductor companies and those who trade the stocks of such companies that they monitor these developments very closely to avoid any volatile shock.