This article first appeared in The Edge Malaysia Weekly on August 21, 2017 - August 27, 2017

AMID the emerging trends surrounding artificial intelligence and the Internet of Things, there has never been a better time to have exposure to technology and semiconductor stocks. Large-cap tech and semiconductor stocks in the US and Europe, as well as Taiwan, South Korea and Japan, have done fairly well in the past 12 months.

Year to date, a quartet of US tech heavyweights — Facebook Inc, Amazon.com Inc, Netflix Inc and Google-parent Alphabet Inc— collectively known as the FANG stocks, saw their share prices jump 45%, 28%, 34% and 17% respectively. The factors driving these stocks include digital advertising, digital video consumption, e-commerce and cloud services.

It is worth noting that most Nasdaq-listed semiconductor developers, manufacturers or brand owners are doing equally well, or even better.

For instance, major fabless semiconductor companies Broadcom Ltd, Advanced Micro Devices Inc (AMD) and Nvidia Corp saw their share prices climb 40%, 9%, 51% YTD respectively.

Since the beginning of the year, share prices of other prominent semiconductor players, namely Texas Instruments Inc (TI), Analog Devices Inc and Micron Technology Inc, have risen by 10%, 7%, and 35% respectively.

During the same period, shares of IT giant Apple Inc also rose 36%.

In Europe, the share prices of Dutch automotive chipmaker NXP Semiconductors NV and German semiconductor titan Infineon Technologies AG have increased by about 15% YTD.

In Asia-Pacific, Taiwan-listed United Microelectronics Corp (UMC) and Taiwan Semiconductor Manufacturing Company Ltd (TSMC), two of the top three pure-play semiconductor foundries in the world, saw their share prices advance 24% and 17% YTD respectively.

The share prices of Taiwanese fabless semiconductor firms Parade Technologies Ltd and MediaTek Inc have also gained 38% and 24% respectively.

South Korea-listed Samsung Electronics Co Ltd and SK Hynix Inc, the world’s two largest memory chipmakers, saw their share prices surge 30% and 50% YTD respectively.

Meanwhile, Japan-based multinational conglomerate Sony Corp and automotive computer chips producer Renesas Electronics Corp, both listed on the Tokyo Stock Exchange, saw their share prices rise 29% and 13% YTD respectively.

The factors behind the rally are similar to those driving the prices of semiconductor-related stocks on Bursa Malaysia as they are all on the same value chain.

Now, if these global industry powerhouses provide clues as to where Malaysian semiconductor counters are heading, investors here can probably sleep soundly at night, at least for now.

To recap, most technology and semiconductor stocks in the US have been rising since the final quarter of last year, but most Malaysian semiconductor stocks have only been trending significantly higher from April.

But bear in mind that on average, the share prices of local outsourced semiconductor assembly and test (OSAT) companies have jumped by over 70% YTD, while automated test equipment (ATE) manufacturers have surged more than 200%.

In other words, the high-flying Malaysian semiconductor stocks are making the US tech rally look modest, but at the same time, raising the question whether the former is running too far ahead.

Notably, shares of American entertainment company Netflix have retraced by about 12% since late July, while its FANG cohorts —Amazon.com, Alphabet and Facebook —have also pulled back by 9%, 8% and 3% respectively, down from their 52-week high.

Fortunately, unlike these mega-cap FANG stocks, the share prices of most foreign semiconductor stocks are holding up pretty well at the moment.

If their performance is a barometer of Malaysian semiconductor stocks, perhaps the local stock rally can be justified.

In a July 28 report, UOB KayHian analyst Yeoh Bit Kun points out that both semiconductor companies and equipment makers recorded sales growth in 2012-2016 at a four-year compound annual growth rate (CAGR) of 10% and 29% respectively.

She adds that the sector’s earnings prospects remains positive due to a near-term earnings boost by the smartphone splash, longer-term earnings sustainability on diversification of products and customer base, as well as companies moving up the value chain.

“While global semiconductor sales and global semiconductor equipment sales grew at CAGR of only 4% and 3% respectively in 2012 to 2016, we gauge that Globetronics Technology Bhd, Inari Amertron Bhd, ViTrox Corp Bhd, Elsoft Research Bhd and MMS Ventures Bhd could achieve record-high sales in 2017-18,” she says.

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