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A Deep Dive Into The Semiconductor Industry

Kennan Mell profile picture
Kennan Mell


  • Semiconductors are an important and fast growing sector, but they can be difficult to understand.
  • There are dozens of semiconductor companies that each play a unique role in the ecosystem.
  • This article will deep dive into the semiconductor industry and highlight what I believe are the best investment opportunities within it.
Green microchip set in a blue printed circuit board

crstrbrt/iStock via Getty Images


At the time of writing, the Direxion 3x leveraged semiconductors ETF (NYSEARCA:SOXL) is the best performing ETF in the last five years, with a total return of 1527% during that time. Even the non-leveraged fund (NASDAQ:

This article was written by

Kennan Mell profile picture
Kennan is a software engineer who enjoys applying his technical background to investing, following Peter Lynch's to "buy what you know." He's received job offers from all of the famous FAMG companies, and graduated cum laude from the Paul Allen School of Computer Science at the University of Washington. Although not an investor by training, he believes that his technical knowledge gives him a unique edge when analyzing high tech companies and finding investment opportunities for a long term time horizon.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of ASML, LRCX, KLAC, TSM either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (76)

A well written article on semiconductor industry. A must read for anyone wanting to or staying invested in this industry.
Surprised to see that this article doesn’t talk about Toshiba (now Kioxia)
Another Mountain's Rock Investing profile picture
@siddu479 well Kioxia is private and Toshiba is about to get acquired so not very useful for this article.
MrWade profile picture
Great article well written, well researched… I’ve been working with semi conductors for years (mobile, SmartTV)this is one of the very most concise articles I’ve ever read. Congrats. Keep up the great work.
Another Mountain's Rock Investing profile picture
Wish I saw this sooner, thanks for the insights.
ric koehler profile picture
Kennan, I got here from your April 7 Intro to your Edge service. One comment on your Chips deep dive: There are significant companies involved in Materials and worth investment and involved in semi production. One appears to be AXT, mentioned in prior Feb 2022 Comment from bike05673.

Check out IIVI in particular. Vertically integrated, from growing / producing their own crystals to running their compound semi fabs. 20 years ago their most was their Materials expertise. The past ten years they've put their Materials IP to use by acquiring fabs to produce compound semis: EpiWorks, Anadigics, Finisar and now Coherent. They are THE competitor to Lumentum.

Surprises me that this deep dive barely mentions compound semis (GaAs, indium phosphate, SiC, etc) which are playing an increasingly more significant role in the industry.

In general an excellent overview of the industry Kennan. Thank you
@ric koehler I caught your message today seems you do the homework. This week QORVO confirmed guidance and got hammered this is very high quality with huge potential and a great history. Time to buy
Semi works together with substrates to move the electrons. Study an American company AXT( AXTI )listen to the past 2-year conference calls and read the website to learn why demand is increasing and how and why AXTI will be a dominant source for specialized substrates that are not a commodity.
Very informative and well written article. Thank you Kennan.
Great article. I applaud the effort and learned quite a few things.

One recommendation - update your Qualcomm knowledge.

They no longer get most of their earnings from licensing given the huge growth in QCT (chip sales) the last couple of years. QCT earnings were ~60% higher than licensing this past year.

Secondly, they have never really had regulatory uncertainty around patents. For sure, the company's patent portfolio is under consistent attack from licensees (notably Apple and previously Nokia) who want to pay less in royalties. But Qualcomm has always been successful defending its licensing business.
Great article, I just "rushed" reading it, given it is near 10pm, and what a day it has been......but wish you'd 'exposed' a little of MRVL?
lshiang profile picture
Very interesting article to help dive into semi!
Awesome article. Just what I've always needed.
Great article. I have a significant part of my portfolio (always < 5% for any single stock) in AMAT and it's been a good stock. In the right part of the business as you point out and steady growth. I like the risk/reward setup. Good balance sheet. Last quarter slight hiccup due to shortages but that's when you buy.
Amazing article. Congrats and big thanks!

My personal portfolio, according to position size:

NVIDIA (very expensive stock)
ASML (expensive but not that overvalued imho)
Arm (via Softbank) (not expensive imho)
Samsung (cheap stock)
AMD (very expensive stock)
GlobalFoundries (very expensive as well imo)

and obviously the ones of
AMZN, Google, Microsoft, Apple which are all future chip designers as well

Haven's included yet on of the Analog players such as Micron, even though I have been looking at this company since 30$. A shame I know.
Sunil Shah profile picture
(sub needed, so lil excerpt from The Atlantic.com)


What Will Drive China to War?

November 1, 2021

A cold war is already under way. The question is whether Washington can deter Beijing from initiating a hot one.
President Xi Jinping declared in July that those who get in the way of China’s ascent will have their “heads bashed bloody against a Great Wall of steel.” The People’s Liberation Army Navy is churning out ships at a rate not seen since World War II, as Beijing issues threats against Taiwan and other neighbors. Top Pentagon officials have warned that China could start a military conflict in the Taiwan Strait or other geopolitical hot spots sometime this decade.

Analysts and officials in Washington are fretting over worsening tensions between the United States and China and the risks to the world of two superpowers once again clashing rather than cooperating. President Joe Biden has said that America “is not seeking a new cold war.” But that is the wrong way to look at U.S.-China relations. A cold war with Beijing is already under way. The right question, instead, is whether America can deter China from initiating a hot one.
@Sunil Shah
“heads bashed bloody against a Great Wall of steel.”

Sun TSU quotes the first one fits the heads bashing statement

Appear weak when you are strong, and strong when you are weak

One may know how to conquer without being able to do it.

There are roads which must not be followed, armies which must not be attacked, towns which must not be besieged, positions which must not be contested, commands of the sovereign which must not be obeyed.

Move not unless you see an advantage; use not your troops unless there is something to be gained; fight not unless the position is critical
Sunil Shah profile picture
@RUBYRUBY3 SANDY MUNRO THE TESLA/EV expert quotes SUN TSU all the time
yup i think his work is a major influence on Xi and CCP increasing Statist Ideology
Fantastic article. A pleasure to read!
thirdcamper profile picture
Excellent and clarifying overview. The predominance of TSM is troubling given geopolitics and vulnerability to China which continues to express overt desire for retaking Taiwan. TSM does have a fab in Washington state and is building another in Arizona, but I wonder if this situation doesn't make for more room for Intel than the article suggests?
nice read
Great article for a novice like me. I appreciate your knowledge and effort to write it all down for us.
Sunil Shah profile picture
@Kennan Mell
pls see my 'burning q' below
this is bigger than you and most can comprehend...
Kennan Mell profile picture
@Sunil Shah I am not sure exactly what you’re asking. China has the resources to develop EUV without ASML, it will just take a long time. Of course TSMC is a big part of the China-Taiwan-USA tensions and that does involve EUV as well. But I doubt that invading Taiwan is really a solution for them. If that happened then ASML could just stop sending EUV machines to Taiwan too (among many other repercussions), and the ones that are already there will only go so far in keeping up with long term demand
Sunil Shah profile picture
@Kennan Mell
"China has the resources to develop EUV without ASML, it will just take a long time'
how long, do you think as the shortest timeframe?

Remember, if the components of an EUV machine, like the Zeiss lenses

(I believe they are the sole supplier to ASML, and Zeiss too could face similar sanctions by US govt to US customers, thereby inducing Zeiss to forego a Chinese order request )

are also embargoed, could China produce an EUV etching/masking machine from 'scratch' so to speak?
if that was the sole option availed, how long would it take China, in your shortest lead-time guesstimate?

And are there intl patents to consider?

ta in advance.
Kennan Mell profile picture
@Sunil Shah It’s difficult to estimate and you bring up a lot of important issues. If anyone can do it, it’s the government of one of the largest nations in the world though. I’ve seen estimates from others that have studied this more that say over a decade (which is the estimate I put in the article)
What about ON or KLIC? I see they have a good quant rating.
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