Global Semiconductor Stocks' Total Market Value Increases 4.7-Fold in 5 Years
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The total market value of global semiconductor-related companies is growing. As of March 5, it reached $7.153 trillion, a 4.7-fold increase over the past five years. The surge in global digital demand and expanding semiconductor applications, coupled with investments in generative AI and progress in semiconductor inventory reduction, have improved corporate earnings expectations, driving stock prices higher.
Including companies classified as 'semiconductors' by QUICK FactSet and some semiconductor production equipment manufacturers, the total market value in USD was calculated. As of March 5, approximately 840 companies were included. A simple comparison of the total market value with the end of 2018 shows a 4.7-fold increase, accounting for over 6% of the global listed companies' total market value, up by about 4 percentage points.
Looking at the increase in market value compared to the end of 2018 by specific companies, NVIDIA led with an increase of approximately $2 trillion (a 26.4-fold growth). Following were Broadcom (about $520 billion, 6-fold), TSMC (about $410 billion, 3.2-fold), and ASML Holding (about $330 billion, 5.8-fold). The turning point came with the expansion of digital demand during the COVID-19 pandemic, driven by stay-at-home requirements and businesses seeking to improve operational efficiency. The global semiconductor market exceeded $550 billion in 2021, a 20% increase from 2018, leading to improved corporate performance and heightened growth expectations.
In 2022, factors such as rising U.S. long-term interest rates, declining demand for consumer goods, and semiconductor inventory adjustments caused a sharp decline in the total market value of semiconductor-related companies. However, the long-term growth prospects of the semiconductor market remained intact. Driven by demand from data centers and automotive sectors, there is growing consensus that the semiconductor industry's downturn periods have become shorter and shallower.
The emergence of ChatGPT in 2023 dramatically strengthened expectations for generative AI. As semiconductor inventory adjustments progressed, the probability of demand recovery in non-AI related fields also increased. While automotive and industrial applications are currently undergoing slow adjustments, the overall semiconductor market continues to show upward momentum entering 2024. The total market value of semiconductor-related companies has increased by nearly 30% compared to the end of 2023. From a P/E (price-to-earnings) ratio perspective, "semiconductor device companies remain undervalued compared to the past," said Daisuke Ban, Japan Equity Research Analyst at FIL Investments (Japan) Limited. In fact, Nvidia's forward P/E ratio for the next fiscal year is around 29x, below its 5-year average (approximately 36x), and the same applies to TSMC. Advanced Micro Devices (AMD) also has a P/E ratio significantly lower than during the COVID-19 pandemic.
One background factor is profit growth, as market forecasts predict semiconductor companies' earnings per share (EPS) for the next fiscal year to reach record highs. Nvidia, which has notably benefited from generative AI, has seen its EPS expectations rise by over 20% in the last three months, "indicating that stock prices are catching up with profit growth," said Kazuyoshi Saito, Senior Analyst at Iwai Cosmo Securities. Beyond Nvidia, uncertainties in consumer product demand and inventory adjustments in automotive applications may also be suppressing P/E ratios for some companies. In the semiconductor production equipment sector, the price-to-earnings (P/E) ratios of major US companies and Tokyo Electron have reached their highest levels in the past five years. Due to performance enhancements and growing demand, semiconductor production equipment is expected to achieve market growth exceeding that of semiconductor devices themselves in the long term. Additionally, Japanese manufacturers have significantly benefited from capital inflows into the Japanese stock market. Although some voices point to overheating, Daisuke Ban of FIL Investments (Japan) Limited states that "the improvement in fundamentals has just begun," and there are few investors who believe it's time to sell.
However, risks remain. The unpredictable nature of US-China relations, particularly regarding semiconductor export controls amid the 2024 US presidential election, poses challenges. At the same time, the recovery of demand outside of AI and the direction of US interest rate cuts remain unclear. The prominence of semiconductor-related stocks has reached unprecedented levels, and any significant price correction could have a substantial impact on the market.