Semiconductors are a marvel of modern technology and the foundation of modern life. Packed with up to tens of billions of transistors on a piece of silicon the size of a quarter, semiconductors enable everything from cars to coffee makers, not to mention new, potentially game-changing applications such as artificial intelligence, quantum computing, advanced wireless networks, and more.
Semiconductors stocks are one of the hottest trends on the ASX. Ever since the pandemic hit and the technology sector gained more focus, the need and demand for electronic devices skyrocketed. While we were always heading towards a digital economy, the pandemic accelerated this migration. As a result, investors started paying more attention to semiconductor stocks that are building bleeding edge technology products.
The ASX is home to large, medium, and small semiconductor companies that reshape the future with their products. ASX’s beloved BrainChip Holdings (ASX: BRN) is the top-performing semiconductor stock, with market capitalisations hitting over $2 billion at the time of writing this piece.
Semiconductor stocks such as Weebit Nano (ASX: WBT), Audinate Group (ASX: AD8), 4DS Memory (ASX: 4DS), Revasum (ASX: RVS) have been gaining a lot of attention from investors. We have recommended several of these semiconductor stocks to our members, and they have been performing extremely well recently. Weebit Nano (ASX: WBT) has returned a solid 52% in the past 6 months alone.
These semiconductor stocks mentioned earlier stocks have diverse product offerings within the semiconductor industry. BrainChip builds products for EdgeAI applications. Their Akida chip essentially mimics a human brain and allows a computer or a technology device to make decisions just as a human brain would. Pretty cool if you ask us!
Weebit Nano (ASX: WBT) and 4DS Memory (ASX: 4DS) reinvent the wheel in the memory on the chip space. What does that mean? Well, some applications of semiconductor chips need to have memory to retain information and utilise it. Think of your phone or laptop. WBT and 4DS are tackling this space to make memory faster and longer-lasting than what exists in current technology.
According to The Semiconductor Industry Association (SIA), the semiconductor industry has experienced rapid growth and delivered enormous economic impact over the past three decades. Chip performance and cost improvements made the evolution from mainframes to PCs in the 1990s, the web and online services in the 2000s, and the smartphone revolution in the 2010s. Indeed, these chip-enabled innovations have created incredible economic benefits. For example, from 1995 to 2015, an estimated $3 trillion in global GDP has been directly attributed to semiconductor innovation, along with an additional $11 trillion in indirect impact. Semiconductors have become essential to our modern world, which is why long-term market demand for semiconductors remains strong. However, the COVID-19 pandemic and the global chip shortage present significant market challenges to the industry in the near term.
While 2020 market forecasts fluctuated throughout the year due to demand uncertainty caused by the COVID-19 pandemic, the global market increased in 2020 and 2021. Following weak sales of $412.3 billion in 2019, global sales in 2020 increased by 6.8% to $440.4 billion, due largely to demand growth spurred by the COVID-19 pandemic. The World Semiconductor Trade Statistics (WSTS) Semiconductor Market Forecast released in June 2021 projected worldwide semiconductor industry sales will increase significantly to $527 billion in 2021, an upward revision from its Fall 2020 forecast for 2021, due mainly to the continued strong demand growth in the overall market from 2020. In 2022, WSTS forecasts global sales will continue growing to $573 billion.
One significant consequence of the pandemic over the past year has been the global chip shortage that has impacted several end markets, including the automotive market. The pandemic was a once-in-a-generation event that created substantial and unanticipated swings in demand.
The shortage took hold in 2020, largely due to significant swings in demand caused by the COVID-19 pandemic as far back as Spring 2020. Some customers reduced production and chip purchases as the virus spread across the globe. In addition, several countries and regions went into lockdown in early 2020, which significantly interrupted semiconductor supply. Chipmakers, meanwhile, saw surging demand for semiconductors in other sectors used to enable remote healthcare, work-at-home, and virtual learning, which were needed during the pandemic. The shortage affects a range of downstream sectors, including cars, consumer electronics, home appliances, industrial robotics, and many other key goods.
The semiconductor industry has worked diligently to ramp up production to meet renewed demand during the shortage. First, the semiconductor industry worked hard to keep operations running globally, especially during the start of the pandemic in Spring 2020 when many foreign and state governments imposed lockdown orders on businesses. The semiconductor industry worked to classify its operations as “essential” to continue operations. During the shortage, the industry has run fab utilisation well above the normal utilisation level of 80%. When market demand runs high, such as in a cyclical market upturn like the one the market is in now, front-end semiconductor fabrication facilities, or fabs, will typically run above 80% capacity utilisation, with some individual fabs running as high as between 90-100%.
The industry has steadily increased overall fab utilisation over the past two years. It is estimated to increase utilisation during most of 2021 to meet demand. Higher fab utilisation will increase chip output and help the industry meet the increased demand in the market. In short, the semiconductor industry has done precisely what is in its power to do in the short-term to meet the increase in demand, which is to expand fab utilisation and run fabs at their highest capacity possible.
The chart above shows the performance of BrainChip Holdings (ASX: BRN), Revasum (ASX: RVS), and Weebit Nano (ASX: WBT). These stocks have been at the top of the shopping list for most investors through the past year.
In the past 6 months, RVS shares have returned 128% to investors, and WBT shares have returned over 83%. BrainChip also had similar gains until just a few weeks ago when BRN shares skyrocketed. If you’re looking to find out what BrainChip is all about and why shares have been surging recently, learn all about it by clicking here.
Over the next decade, further innovation in semiconductor technology will enable a host of transformative technologies, including 5G, artificial intelligence (AI), autonomous electric vehicles, and the internet of things (IoT). Indeed, long-term growth drivers for semiconductor demand are firmly in place. The relationship between semiconductors and the markets they serve is truly symbiotic, as innovations in semiconductors themselves help to spur further market demand and open up new markets entirely. For example, successive generations of cellular technology have been made possible by advances in semiconductors, leading to the recently introduced 5G. While demand drivers in the short-term experienced some unexpected shifts brought on by societal changes due to the COVID-19 pandemic, in many ways, these shifts have resulted in an overall increase in demand, as society has recognised and leaned on semiconductor-enabled technologies more than ever to make it through this unprecedented period.
BrainChip is very active and keen to accelerate its Akida chip commercialisation. Hence, the Company has been active in discussions with various prospective customers to deploy its technology, including tier-1 automotive suppliers and manufacturers and smart home equipment manufacturers. Furthermore, BrainChip is also partnering with other chip companies. Since last year, a few deals that we have seen are the evaluation deal with Ford and the NASA deal. With Ford, it is the implementation of neuromorphic computing technology to cars to propel autonomous vehicles. With NASA it is to test the use of the Akida chip in spaceflight. These are perfect examples of what future applications could look like.
But one of the major milestones BrainChip has reached is the recent deal made with the Japanese semiconductor firm, MegaChips. Hence, BrainChip has just signed a four-year licensing deal with its Japanese counterpart that should bring in at least two million US dollars in the next twelve months. It is also worth noting that this will come along with royalties and additional licence fees in the years after that.
As part of this new business relationship, MegaChips will utilise BrainChip Akida IP to support the development of AI-based solutions for edge computing.
MegaChips is a notable brand within the tech industry. The Company maintains a reputation for designing microchips with low-energy consumption and powerful performance. Brainchip recently gained notoriety as well due to the success of the Akida platform, which allows developers to create applications for a few smart devices and highly advanced IoT tech across a diverse range of industries.
Through this partnership, MegaChips developers can develop a wider range of sophisticated solutions and applications. This is made possible through the scalability and flexibility of the Akida technology.
We believe the recent deal with MegaChips is a mega step in the right direction, but the market will want to see a few more deals before it can value BrainChip for a dollar-per-share, in our opinion. Although, we could see the shares starting to creep up. This might be the market expecting additional deals to materialise soon. However, many investors will continue to consider BrainChip as a “Speculative” bet for a bit longer in the absence of at least a handful of commercial deals.
Weebit Nano has had a strong start to FY22, delivering its most successful quarter with significant
progress on both commercial and technical fronts. During Q1 of FY22, Weebit secured its first commercial deal to take its ReRAM technology to volume production with semiconductor foundry SkyWater. The deal incorporates a technology transfer and qualification agreement and a non-exclusive licensing agreement.
Weebit and SkyWater are working together to transfer and qualify Weebit’s ReRAM technology in SkyWater’s US production fab, to have the technology qualified by the end of the calendar year 2022. Following qualification, SkyWater has a non-exclusive licence to manufacture Weebit’s ReRAM technology in its fab. The technology transfer process with SkyWater has now commenced.
WBT also recently raised funds to continue the stunning development already being done. Weebit is therefore raising funds to capitalise on the growing momentum to accelerate new commercial opportunities and research and development activities to take Weebit’s ReRAM into even smaller geometries, given progress on discussions with potential production partners and customers.
Weebit announced a capital raising comprising placement of approximately A$25.7 million to 4 Israel-based institutional investment and pension funds and a pro-rata non-renounceable entitlement offer to raise approximately A$9.0 million.
Unlike BrainChip and Weebit Nano, both in the commercialisation phase, Revasum already generates revenue. Revasum achieved process acceptance (meeting agreed process criteria for the tool) on the first 6EZ SiC Polisher shipped to Europe. This significant achievement confirmed that the technology worked to its advanced specifications and solidified Revasum’s market-leading position for SiC CMP equipment. The Company continues to focus on Continuous Improvement Programs (CIP) in partnership with strategic customers to improve the process results achieved on the 6EZ continually.
Global fab equipment spending for front‐end facilities is expected to Increase 10% YOY in 2022 to an all‐time high of over US$98 billion. This is the third consecutive year of substantial growth following increases of 39% in 2021 and 17% in 2020. The industry last saw three consecutive years of growth from 2016 to 2018, more than 20 years after a three‐year run in the mid‐1990s.
During the quarter, Revasum announced total FY22 revenue guidance of US$25 million – US$35 million in light of increased customer demand and strong market dynamics for the SiC industry. This comprises US$18 million – US$25 million of equipment revenue, and US$7 million – US$10 million for other revenues. Revasum anticipates that it will ship 40 to 50 tools over FY22 and FY23 across all product lines. The Company is partnering with industry‐leading contract manufacturers to support the capacity expansion required to achieve rapid revenue growth. Management is implementing processes to meet the increased demand.
Revasum has an aggressive roadmap to continually improve performance during FY22 with its strategic customers. Revasum is focused on developing new processes to reduce the overall cost of ownership for our customers, working with industry-leading consumables suppliers to achieve optimal results.
To sum up, we are expecting a very productive year for the semiconductor industry. Demand is soaring, and ASX semiconductor stocks such as BrainChip, Weebit Nano, etc., are close to commercialisation. This means that these stocks will finally start generating revenue. In anticipation, we expect investors to increase interest in semiconductor stocks in 2022.
Investors also asked these Questions
- What are the best tech stocks to invest in ASX?
With ASX tech stocks taken to the cleaners recently, we expect this trend to continue in the next few weeks and would refrain from investing in tech stocks at this point.
- Who is leading the semiconductor industry in Australia?
Given how vast the semiconductor industry is and how nascent these semiconductor stocks are on the ASX, there is no clear leader in the space. However, we think that BrainChip (ASX: BRN) has no direct competitor on the ASX.
- What are the best blue-chip stocks to invest in in 2022?
During periods of high volatility, blue-chip defensive stocks such as Seven Group (ASX: SVW) offer great value. Contact us to find out our “Top 10 Stocks for 2022” list.