The Foundry Quandary: Owning Semis Late in the Cycle

The semiconductor industry has long been a poster child of cyclicality.

Peter Nori

Peter NoriDirector of Global ResearchTempleton Global Equity Group


The semiconductor industry has long been a poster child of cyclicality.  Historically, industry revenues have been 90%+ correlated to global gross domestic product (GDP) growth.1 Why would value investors want to own these stocks late in the cycle? Now that the sun appears to be setting on one of the longest economic expansions in history, is this the time to be holding cyclical tech stocks that have outperformed the broader market since last year and trade near multi-year valuation highs? 

This may seem like foreign soil for value investors, but unfamiliar terrain can yield surprising discoveries. Closer examination suggests that the semiconductor industry is indeed home to a few unusual opportunities. It’s far from a broad sector play, but within the semis space we’ve found a handful of stocks that we believe offer superior quality and growth optionality at valuations that appear reasonable in the context of today’s policy and interest rate regime.

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  1. Source: SIA, Haver Analytics, Morgan Stanley Research, June 2019.

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