‘Hidden’ Tech Gets 5G Boost

New phones may share one company’s microchip – what does that mean for investors?

Andrew Willis 8 September, 2020 | 2:52AM
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After the bitcoin-fueled fanfare for computer hardware like Nvidia (NVDA), and then the scramble for communications software with Zoom (ZM), we’re back to high demand for hardware around the coronavirus – but we’re not sure it will last.

Stocks like Taiwan Semiconductor (TSM) (Slide 1: Microchip) have picked up steam since the pandemic as investors realized that there’s a lot of boring, but foundational processing hardware (Slide 2: Smartphone) out there that many 5G phones need. Sounds like a pretty simple value proposition: ‘make chip, and phone will come.’

Not quite. While we saw 2nd quarter results (Slide 3: Stock slide) for Taiwan Semiconductor that were consistent with high demand for related hardware – investors should be sure (Slide 4: Smartphone factory) that the phones themselves will be ready, and even wanted.

Sector Strategist Abhinav Davuluri warns that we’re not out of the woods when it comes to potential COVID-19 supply chain disruptions (Slide 5: Empty factory).  And although he’s recently raised his fair value estimate for the company on the recent near-term boost, he also says that end-consumer demand post-pandemic could be a problem.

We do see demand for 5G-related tech increasing this year in the high-teens but we also see demand for smartphones dropping in the low-teens. With a lingering coronavirus, and tensions within and between China and the US right now, this seemingly simple smartphone investment comes with strings attached.

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Taiwan Semiconductor Manufacturing Co Ltd ADR169.82 USD0.28Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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