Strong quarterly results from Micron Technology (NASDAQ:MU) and Taiwan Semiconductor (NYSE:TSM) suggest that investors should consider the semiconductor sector.
Taiwan Semiconductor posted March 2020 revenue increasing 21.5% from February. This is up 42.4% from last year. The increase suggests that its customer, Advanced Micro Devices (NASDAQ:AMD), is ramping up production due to strong demand. So, while Apple (NASDAQ:AAPL) cut orders, TSM is benefiting from its PC chip suppliers increasing output.
TSM’s results are in contrast to Applied Materials (NASDAQ:AMAT) withdrawing its outlook. Lam Research (NASDAQ:LRCX) also withdrew its March outlook due to the "shelter-in-place" order. Although LRCX stock already fell only to rebound, investors may start considering a position in these companies.
Chip demand is on an uptrend, with the latest slowdown a temporary event. But the longer the countries shut down businesses to contain the spread of the coronavirus, the more damage it will have on-chip sales.
In the medium term (three to six months), the shutdown will only increase the pent-up demand. Businesses will eventually resume as will chip production. When that happens, any discount in AMAT, TSM, or LRCX stock will not last for very long.
Investors should take advantage of a dip in chip stocks to build a position. The current downturn will end for chip suppliers, while Taiwan Semiconductor will lead the next sustained rebound.
Tech Insider
