Overview of The Semiconductor Sector

2015 semiconductor revenues came in relatively flat Y/Y and the SOX semiconductor index was flat in 2015 as well (versus +28% return in 2014). Looking ahead, we expect the semiconductor industry to return to growth and expect the SOX to outperform the broader markets with average upside within our coverage universe of 10-15%. The industry is pulling out of a mild cyclical downturn, characterized by value chain inventories normalizing with demand trends, and the next phase should be semi companies shipping to consumption/seasonal trends and a growth outlook for 2016, in line with our view for an increase in global GDP next year. Semi stocks have started to positively discount an improved fundamental dynamic (similar to prior cycles), and we see further upside driven by continued diversification and operating and free cash flow margin expansion.

If we look at the graph presented below, taken from Bloomberg we can see how the SOX index performed vs. the S&P in 2015. We notice on the graph that Bloomberg also released a buy recommendation for the index in the beginning of September. This recommendation was a long-term buy of the index inviting investors to hold on to the index through 2016.

Source: Bloomberg

The “Gemini”: Most Advanced GPU

Although AMD faces stiff competition in their market from heavyweights such as Intel Corporation, they operate in a niche for graphic chips, where they boast a very good reputation. AMD is known globally for the production of their GPUs (Graphics Processing Units), and CPUs (Central Processing Units). For the upcoming year we see potential upside on the GPU side; over the last year, AMD’s “Radeon” (GPU) chips have been a game changer for the company, constantly being improved and updated with new features, they were a success and definitely helped boost the company’s profits.

This year AMD announced the latest and most advanced GPU chip yet, known as the “Gemini”. The Gemini is focused on Virtual and Augmented Realities, the biggest revolution yet. AMD’s GPU chips have always been focused on the gaming industry, and they were always updated with the latest technologies. With the market for Augmented and Virtual realities booming at the moment, this chip could potentially change the company’s history as no others are in production of similar products yet.

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