Semiconductors are killing it, and you can thank China. The Semiconductor ETF (SMH) is just shy of the historic high it hit a year ago, and there's good reason for it: China.
The five S&P companies with the biggest exposure to China are all semiconductors. Qualcomm, Micron, Qorvo, Broadcom, and Texas Instruments all get 40% to 60% of their revenues in China.
Semiconductors' China exposure, (percent of revenue)
Qualcomm: 65%Micron: 57%Qorvo: 50%Broadcom: 48%Texas Instruments: 43%Source: Factset
As optimism for a U.S.-China trade deal rises, so have semiconductor prices. In fact semis are the leadership group among technology and cyclicals more broadly this year, with AMD up nearly 60%, and Nvidia, Lam Research, Micron, Applied Materials and Broadcom all up 20% to 40%.
Semiconductors year-to-date surge
Advanced Micro Devices: 58%Nvidia: 42%Lam Research: 41%Micron: 38%Applied Materials: 30%Broadcom: 20%Not surprisingly, there has been a close relationship between semis and the China stock market itself..the Semiconductor ETF is up about 28%, and the Shanghai stock exchange is also up about 28% — the two have been moving in lockstep all year.
Still the markets are pricing in a lot of optimism. Broadcom, for example, is a big Apple supplier. Softness in China, where Apple gets nearly 20% of its revenues, has been a concern. This whole play is based on stabilizing demand, not just in China but also in Europe.
