Technology 2024 outlook – A year of optimism
- Memory segment thrives during upcycles in the semiconductor industry, followed by equipment makers, supported by improving macro picture
- Uneven recovery path, with downstream players to benefit from 2H24; demand for PCs and mobiles are emerging from a trough; anticipate slower growth for automotive and stable for servers
- Pick MU, LRCX, KLA, AMAT for exposure to memory segment and equipment makers
- ”Chip” bargains – VMS, Luxshare; Riding on semiconductor recovery – UMS, FRKN; Proxies to Apple supply chain – Luxshare, BYDE; Smartphone premiumization – Xiaomi
Strong semiconductor growth in 2024; memory and equipment makers to lead. We expect strong growth for the semiconductor industry in 2024 and 2025, after a weak 2023, with further improvement for global shipments. The memory segment – Micron (MU), is expected to lead this recovery, while equipment makers – Lam Research (LRCX), KLA Corp (KLA), Applied Materials (AMAT) generally excel during upcycles. Technology stocks tend to outperform during Fed-rate pause, with projected revenue growth of c.21.8% over the next four quarters, vs c.5% for the broader market. Outsourced semiconductor assembly and test (OSATs) and downstream players, on the other hand, should recover from 2H24 onwards.
No straight path out of the woods. PC and mobile segments have started to emerge from the trough since 1Q23. Both segments are projected to deliver shipment growth of c.5% y-o-y in 2024, after declining by 10%-15% in 2023. The server market should fare much better in terms of value, driven by higher ASP and shipment growth related to strong demand for higher end GPU servers on the back of the AI drive, while growth for the automotive segment could slow.
Looking for “chip” bargains? Singapore and HK/China valuations still lag the PHLX Semiconductor Index (SOX), which was boosted by AI. Stocks trading at inexpensive PE valuations are Venture (VMS) (-2SD) and Luxshare (-1.5SD). Luxshare and BYD Electronic are proxies to the Apple supply chain while Xiaomi is benefitting from smartphone premiumization. UMS and Frencken (FRKN) are our picks to ride on the semiconductor recovery. Most of our ASEAN coverage are beneficiaries of the China +1 strategy while Chinese companies are also looking to diversify out of China.
