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Chips vs. Tech: A Tale of Two Sectors

Wesley ParkTuesday, Jan 7, 2025 10:40 am ET
5min read



The semiconductor sector has been on a roll, outpacing the broader tech sector in terms of revenue growth and market capitalization over the past five years. In 2021, the global semiconductor market size was $555.9 billion, with a compound annual growth rate (CAGR) of 12.1% from 2017 to 2021. In comparison, the broader tech sector had a CAGR of 8.5% during the same period. As of 2021, the market capitalization of the top five semiconductor companies (Intel, Samsung, TSMC, SK Hynix, and Micron) was $1.2 trillion, compared to $7.5 trillion for the top five tech companies (Apple, Microsoft, Alphabet, Amazon, and Facebook).

2017-2021's total revenue compound annual growth rate(6525)
gics industry group include semiconductor(102)
2017-2021's total revenue compound annual growth rate;gics sector include semiconductor(102)
Total Revenue (FY) CAGR%2017.12.31-2021.12.31
GICS Industry Group
63.32Semiconductors & Semiconductor Equipment
55.71Semiconductors & Semiconductor Equipment
50.97Semiconductors & Semiconductor Equipment
40.02Semiconductors & Semiconductor Equipment
38.09Semiconductors & Semiconductor Equipment
34.11Semiconductors & Semiconductor Equipment
32.99Semiconductors & Semiconductor Equipment
32.61Semiconductors & Semiconductor Equipment
30.32Semiconductors & Semiconductor Equipment
26.55Semiconductors & Semiconductor Equipment
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The chip sector's performance is driven by key factors such as memory chip market fluctuations, end market demand for PCs and smartphones, and inventory and fab utilization levels. In 2023, the memory chip market was the biggest swing factor, with sales dropping 31% (about US$40 billion) and expected to recover in 2024. End market demand for PCs and smartphones is also crucial, with both expected to grow 4% in 2024 after declines in 2023. Inventory and fab utilization levels are important indicators of the industry's health, with high inventories and low utilization expected to impact sales in the first half of 2024. In contrast, the broader tech sector's performance is driven by factors such as cloud/data centers, wireless, and automotive, with AI surging to the top position as the most important revenue driver.



Chip companies' valuations have evolved significantly compared to the broader tech sector. In 2021, the global chip market was valued at US$555.9 billion, with a compound annual growth rate (CAGR) of 12.5% expected from 2021 to 2026 (Fortune Business Insights). However, the industry experienced a downturn in 2023, with sales expected to be down 9.4% to US$520 billion. Despite this, chip sales are projected to bounce back in 2024, reaching US$588 billion, a 13% increase from 2023 and 2.5% higher than 2022's record revenues (Deloitte). This volatility highlights the cyclical nature of the semiconductor industry. For investors, this means opportunities for growth but also increased risk. As the industry recovers, chip companies may present attractive investment opportunities, but investors should also be prepared for potential downturns. Additionally, the increasing importance of AI and 5G technologies may drive future growth, but geopolitical tensions could complicate growth in the semiconductor industry.

The most promising growth opportunities within the chip sector are driven by emerging technologies and market trends. According to Deloitte, the market for chips that accelerate the training and inference of generative AI models was the semiconductor story of 2023, with sales predicted to reach more than US$50 billion in 2024, or 8.5% of the value of all chips expected to be sold for the year. This growth is supported by the increasing demand for AI chips, which are expected to reach US$400 billion in sales by 2027. Additionally, the automotive and data storage industries are expected to contribute significantly to the growth of the chip sector, with a combined 70% of growth predicted by 2030. In comparison, the broader tech sector is expected to grow at a compound annual growth rate of around 7% from 2021 to 2030, with the computing and data storage segment contributing the most to this growth.

In conclusion, while the broader tech sector has experienced significant growth over the past five years, the chip sector has outperformed in terms of revenue growth and market capitalization. As the semiconductor industry continues to evolve, driven by factors such as AI and 5G technologies, investors should keep a close eye on this dynamic sector for potential investment opportunities. Despite the cyclical nature of the industry, the long-term outlook for the chip sector remains positive, with promising growth opportunities on the horizon.
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confused-student1028
01/07
$TSM just upped its share count by 100 more.
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smarglebloppitydo
01/07
$AAPL is about to cross the 236 mark!
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daarkann
01/07
$INTC has been trading within a tight range of 19-21 before the announcement of their CEO.
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HotAspect8894
01/07
$AAPL 🤷‍♂️😅
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bllshrfv
01/07
Broad tech sector's growth is solid, but semis steal the show. 🤔 Long-term, chip sector looks promising.
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Progress_8
01/07
5G's the real deal, semis will thrive.
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I_kove_crackers
01/07
AI chips gonna moon, mark my words
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LabDaddy59
01/07
Holding $INTC, riding the chip wave up.
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vdeventa
01/07
Emerging tech + market trends = growth. Keep eyes peeled for automotive and data storage plays.
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Assistantothe
01/07
$INTC Closing at 24-25 eod!!!
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gameon-manhattan
01/07
AI chips are the new gold rush. 🚀 $50B in 2024? I'm all in on that action.
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greenpride32
01/07
Semis outpacing tech? Crazy times. Intel and TSMC are heavy hitters, but don't sleep on Micron.
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jstanfill93
01/07
AI chips are the future, no doubt. 🚀 But can we handle the volatility? Risk and reward, folks.
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