Semiconductors are killing it—thanks to China

Key Points
  • Semiconductors are killing it, and you can thank China.
  • The Semiconductor ETF (SMH) is just shy of the historic high it hit a year ago.
  • The five S&P companies with the biggest exposure to China all get 40% to 60% of their revenues in China.
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Semiconductors are killing it, and you can thank China. The Semiconductor ETF (SMH) is just shy of the historic high it hit a year ago, and there's good reason for it: China.

The five S&P companies with the biggest exposure to China are all semiconductors. Qualcomm, Micron, Qorvo, Broadcom, and Texas Instruments all get 40% to 60% of their revenues in China.

Semiconductors' China exposure, (percent of revenue)

  • Qualcomm: 65%
  • Micron: 57%
  • Qorvo: 50%
  • Broadcom: 48%
  • Texas Instruments: 43%

Source: Factset

As optimism for a U.S.-China trade deal rises, so have semiconductor prices. In fact semis are the leadership group among technology and cyclicals more broadly this year, with AMD up nearly 60%, and Nvidia, Lam Research, Micron, Applied Materials and Broadcom all up 20% to 40%.

Semiconductors year-to-date surge

  • Advanced Micro Devices: 58%
  • Nvidia: 42%
  • Lam Research: 41%
  • Micron: 38%
  • Applied Materials: 30%
  • Broadcom: 20%

Not surprisingly, there has been a close relationship between semis and the China stock market itself..the Semiconductor ETF is up about 28%, and the Shanghai stock exchange is also up about 28% — the two have been moving in lockstep all year.

Still the markets are pricing in a lot of optimism. Broadcom, for example, is a big Apple supplier. Softness in China, where Apple gets nearly 20% of its revenues, has been a concern. This whole play is based on stabilizing demand, not just in China but also in Europe.