‘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

 

 

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 ADR103.73 USD4.25

About Author

Andrew Willis

Andrew Willis  is Content Editor for Morningstar.ca

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