As the demand for consumer electronics has been increasing across the globe to stay connected remotely, the demand for semiconductor chips that are needed to run the gadgets is on the rise. This, along with rising demand for semiconductors from the booming EV industry, has created a massive imbalance between supply and demand. However, the resultant increase in prices has been working favorably for the chip manufacturers. This has led to significant investors’ attention to the semiconductor space, as evident from the SPDR S&P Semiconductor ETF’s (XSD) 19.4% returns over the past six months versus the SPDR S&P 500 ETF’s (SPY) 6.3% returns.
While the semiconductor manufacturers are ramping up production with government support to meet the mounting demand, the supply shortage may not end soon. With the growing applicability of chips in the tech era, defined by the Internet of things (IoT), Artificial intelligence (AI), 5G network, and cloud computing, the demand for chips should keep rising. According to Research and Markets, the global semiconductor market is expected to grow at a CAGR of over 6% by 2026.
