In this segment of “Semiconductor Revolution” from Motley Fool Live, recorded on Jan. 20, Fool contributors Jose Najarro, Will Healy, and Billy Duberstein discuss some of the factors that may help semiconductor companies better manage boom and bust cycles.
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Jose Najarro: I don’t know if I’m just biased in the semiconductor market. But I feel because the semiconductor market has really been in kind of like this boom and bust cycle throughout the years. It knows how to handle it a little bit better.
Recently, I don’t know if you guys follow Peloton (NASDAQ: PTON). I don’t own stocks on Peloton, but this is a stock that recently they hired a huge amount of sales and marketing during last year. They increased like their productions, they increased numerous stuff because they were expecting, I guess this growth to continue. I think they’re laying off a ridiculous amount of employees and stuff like that.
I feel like to some extent because the semiconductor market has seen this kind of boom and bust. They do try to accelerate as much as they can, but at the same time, they do it in a place where they’re not going crazy hiring. I’m pretty sure ASML (NASDAQ: ASML) and all these creators for semiconductors, the equipment, especially they can probably focus a lot more money if they wanted on building more factories. But at the same time, they have to be smart. They can’t overbuild too much. Because eventually demand might slow down there and they don’t want to be, for example, a Peloton.
Will Healy: Different parts of the industry have different booms and bust cycles. Since they’re in the NAND memory like MyDrive, Micron (NASDAQ: MU) is notorious. I think it’s even worse than most companies for boom and bust cycles. Between the mid-90s and 2015 or so, the stock made no net gains. I don’t know Lam (NASDAQ: LRCX) as well, is Lam the same way, or is it more like a boom and bust cycle like Nvidia (NASDAQ: NVDA) might see for example?
Billy Duberstein: Lam is a supplier to both the foundries and someone like a Micron or Samsung. Obviously, if those companies bust, they pull back on investment in machines, Lam’s results kind of follow, but Lam is not going to have like a zero profit year, like even 2019, they were profitable.
These companies are much more capital-light, the equipment companies are actually pretty capital-light. They’re not building a ton of like their own factories that are hugely expensive. They make the expensive equipment that goes in the factories.
They don’t actually have a huge amount of capital expenditures that they have to spend. It’s a bit smoother than the most cyclical names. But there is a supplier to the cyclical names, so their revenue and profits will move around. But they’re not going to have a huge crash, I don’t think.
Billy Duberstein owns ASML Holding, Lam Research, and Micron Technology and has the following options: short January 2023 $160 calls on Micron Technology, short January 2023 $320 puts on Lam Research, short March 2022 $300 puts on Lam Research, short March 2022 $40 puts on Micron Technology, and short March 2022 $45 puts on Micron Technology. Jose Najarro owns Nvidia. Will Healy has no position in any of the stocks mentioned. The Motley Fool owns and recommends ASML Holding, Lam Research, Nvidia, and Peloton Interactive. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.