Has deglobalization come for the semiconductor industry? On Oct. 11, the U.S. government announced new licensing requirements for the export of high-performance AI semiconductor chips to China.
These export restrictions came two months after the enactment of the CHIPS and Science Act of 2022, which provides over $50 billion in subsidies for the onshoring of semiconductor production to the United States.
On the face of it, semiconductors and the broader field of technology look closely correlated. Over long periods of time, the Philadelphia Semiconductor Index and the broader S&P Information Technology Select Sector Index achieve broadly similar returns (Figure 1). Moreover, on a day-to-day basis they tend to display a high correlation (Figure 2).
That said, the strong correlation and general pattern of price movements belies significant differences in returns between semiconductor stocks and the broader IT sector (Figure 3).
Figure 1: Overall SOX and the S&P IT Select Sector Index appear to move in tandem
Figure 2: SOX vs. S&P IT Select Sector Index 1Y rolling correlation has ranged from +0.78 to +0.91
Figure 3: Semiconductors underperformed from 2002-12 & outperformed from 2013-21.
From 2002 to 2012, the Philadelphia Semiconductor Index underperformed the broader tech sector by 50%. During the next decade, this return pattern reversed. While the overall tech sector returned a spectacular 648%, the Philadelphia Semiconductor Index did even better, returning 1109% between 2012 and 2021.
However, 2022 has been difficult, especially for semiconductors. While the broader technology sectors have lost over 30% year-to-date, semiconductor stocks are down over 40%. Part of the reason may be that the broader tech sector was already fragmented with U.S. and Chinese online retailers, social media and internet search engines already largely excluded from one another’s markets. Now the newfound fragmentation of the semiconductor sector may be contributing to the recent underperformance of semiconductor stocks.
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