The Paradox of Semiconductor Stocks... Demand Soars but Stock Prices Plunge 24% This Year?

by Jeong Hyunjin

Published 13 Apr.2022 13:52(KST)

[Asia Economy Reporter Jeong Hyunjin] Despite semiconductor manufacturers recording record-high earnings due to the global surge in semiconductor demand, semiconductor stocks in the U.S. stock market have paradoxically fallen more than 20% this year, Bloomberg reported on the 12th (local time).

According to Bloomberg, the Philadelphia Semiconductor Index, which is composed of U.S. semiconductor-related stocks and reflects the semiconductor industry conditions, closed at 3047.47 on the day, down 0.25% from the previous trading day. This index has risen at least 40% annually over the past three years but has dropped 24% this year. In terms of market value, $750 billion has disappeared.

This Year's Philadelphia Semiconductor Index Fluctuation Trend (Source: CNBC)

Bloomberg analyzed, "This paradox shows that investors believe the economy and stock market will face difficulties due to the challenging combination of rising inflation and high interest rates," adding, "Semiconductors, used in everything from automobiles to computers and equipment, are one of the technology sectors most closely tied to economic trends, which explains this phenomenon."

Looking at individual sectors, the S&P 500 index has fallen 7.4% this year. Among these, customer service stocks dropped 13.3%, software stocks fell 15.3%, and media and entertainment stocks declined 17.8%. Semiconductor and semiconductor equipment stocks fell 21.4% during the same period, showing a sharper decline compared to other sectors.

Although semiconductor-related stocks have been falling sharply, the demand for semiconductors continues to exceed supply. The recent expansion of city lockdowns in China due to COVID-19, the earthquake in Japan, and Russia's invasion of Ukraine continue to significantly impact supply chains. Recently, U.S. financial firm Susquehanna Financial Group reported that semiconductor lead times (the time from order to delivery) reached a record high of 26.6 weeks (approximately 186 days) last month since they began tracking in 2017.

Kim Forrest, founder of Bokeh Capital Partners, said, "People are selling semiconductor stocks because they expect the economy to worsen," adding, "I think the decline will be gradual rather than a sharp drop as seen in previous recessions." Daniel Morgan, manager at Synovus Trust, said, "The consensus on semiconductors is currently negative, but I don't believe the fundamentals are negative," and added, "I am more optimistic."