Great opportunities and risks lie ahead for semiconductors Great opportunities and risks lie ahead for semiconductors Great opportunities and risks lie ahead for semiconductors

Great opportunities and risks lie ahead for semiconductors

Peter Garnry

Head of Equity Strategy

Summary:  Semiconductors are so far the winning theme this year up 26% as the hype around AI technology related to the generation of chatbots and rising expectations of Fed rate cuts later this year have driven sentiment higher. The demand outlook for semiconductors is strong but it will come with several risks around geopolitics and potential rising production costs from bans related to the use of the chemical PFAS.

Key points in this equity note:

  • AI hype and rising Fed rate cut expectations have pushed semiconductors to become the best performing theme this year up 26%

  • The demand outlook for semiconductors is strong but it comes with geopolitical risks as the global supply chain is being reconfigured.

  • A chemical substance called PFAS is highly important for chipmaking and potentially the biggest hidden risk to semiconductors in the future.

Best performing theme basket in 2023 driven by AI hype

Semiconductor stocks were hit hard during the 2022 reset as interest rates galloped higher deflating equity valuations. In addition global supply chain bottlenecks eased reducing some of the pricing power that many semiconductor companies had enjoyed during the early hectic months of the pandemic and especially in 2021 as the world came back online. A combination of AI hype around the new chatbots (ChatGPT and Bard) and expectations of Fed rate cuts later this year have pushed semiconductors into the top ranking on theme basket performance up 25.5% this year outpacing other themes such as mega caps, luxury, bubble stocks, and defence.

The semiconductor industry will likely continue to deliver high long-term growth as semiconductors are essential for our modern economy ranging from cars, smartphones, datacenters, AI and machine learnings systems, and defence systems. The ongoing AI race between Google and Microsoft is an additional growth driver on top of what is taking place already. The industry has grown revenue by 13% the past year and the industry enjoys a high barrier to entry through being capital intensive and intellectual property rights heavy providing the industry with high profit margins.

China’s ban on some Micron chips highlights geopolitical risks

While the demand outlook for semiconductors remains attractive it will not come without risks to shareholders. Micron Technology shareholders experienced that over the weekend when China banned some of its memory chips in China over cyber security risks. For Micron the ban meant a 2.9% decline in its share price as investors realized that the ban was very narrow and that Micron is only getting 16% of its revenue from mainland China and Hong Kong. For China these memory chips can easily be replaced from domestic production or South Korean manufacturers, but it has raised the stakes that China might go after Qualcomm and Intel as well, but the risk for China is that it will wreck its own supply chains in such a move.

The geopolitical confrontation between the US and China started during the Trump administration years when the former US President basically said that globalisation for not a one-way street of wealth creation. It had real consequences for a larger part of the population in the US and Europe. With Russia’s invasion of Ukraine the geopolitical risks increased further and the US has taken steps to re-write industries with national security interests. One of these industries is the semiconductor industry which consists of a highly fragile global supply chain that creates vulnerabilities for the US and Europe.

The US CHIPS Act announced back in August 2022 has a clear intent of subsidizing and setting up an attractive investment framework for US-based semiconductor manufacturing. The US has also introduced several restrictions on semiconductor exports to China and the pressure has been increased on the Dutch government to make restrictions on exports of ASML’s extreme ultraviolet lithography machines to China. Making things even more tense, Japan has announced a set of chipmaking curbs related to China which according to China’s semiconductor industry are potentially even worse than the curbs set by the US. In April this year the EU Commission released its European Chips Act in a step to offset its weaker competitiveness against the US post the US CHIPS Act and decrease supply chain risks related to semiconductors. Around 10% of the global semiconductor production is located in the EU.

Micron Technology share price | Source: Saxo

Are semiconductor driving full speed towards the PFAS roadblock?

Another risk to the semiconductor industry is class of chemicals known as PFAS which are critical for production of microchips. However, recent research has shown that PFAS is dangerous for human health and can even by carcinogenic. This led 3M to announce in December 2022 that it is exiting PFAS production by the end of 2025 as the profits are no longer enough to justify the potential costs from litigation in the future. This decision has set the chipmaking industry on edge because a lack of PFAS supply or other type of restrictions, the EU announced in March that it is planning a ban with a 13,5 years of transition period, would severely constrain the semiconductor industry going forward. To make things worse that are no ready available options to replace PFAS and thus this issue might to a severe roadblock for computer chips and thus overall technology. In the best case scenario a substitute for PFAS is found at equal costs, but a more likely scenario is a replacement but at additional costs. Again another component pointing towards more inflation in the future.


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.