Electronics stocks rarely run like a train schedule, and trying to predict the exact start and end dates of cycle inflections is a challenge. But we should build portfolios that hold up against the inevitability of down cycles. Given their latest rebound, we are not sure whether this was just a dead cat bounce. Therefore, we believe that it is better to be more conservative than generous on valuations and more cautious than optimistic on earnings.
Negative impacts from the two big events
The world continues to grapple with persistent semiconductor shortages, although some segments have seen incremental improvement in recent months. Now, the Russian invasion of Ukraine has the potential to further aggravate the issue with a direct impact on the supply chain of raw materials for chip manufacturing and a fresh wave of panic buying, resulting in shortages and price hikes. The production of neon and palladium, two materials crucial for microchips, could be impacted by the war. Russia supplies over 40% of the world’s supply of palladium and Ukraine produces 70% of the global supply of neon. And nowadays Europe accounts for 10% of the worldwide semiconductors production.