Chips are down

[encumber]

Just chitchatting, nothing serious.

All things semi-conductors are taking a hammering the last week. NVDA seems to have precipitated the fall. STMPA (STMicroelectronics) down 8.7% over 5 days, ARM -12%, NVDA -15%, INTC -11% over same period. RPI down only 6%. I have a miniscule position in RPI, as I like their products.

I have also played around with STM32s, made by STMPA (a Dutch company), and really like their chips, too. It's on a PE of like 8. I'm actually tempted to buy, although I don't have any money. Currently priced at €25.82 . It has a class-action lawsuit filed against it. There's also fears because they are used in cars. But like I say, it's on a cheap rating, they make good products, and are always innovating.

I have a bit of a trading strategy now: save up my dividends and wait until there is a market correction. The ASX peaked in May at around 4600, so if the market drops to 4140 (a 10% drop) I reckon that could be a good entry point. It might not happen of course, but it looks like the market is retracing, so it's not impossible. It will be interesting to see if the market dips below 4400, which seems to be a psychological floor. Not that I'm a technical analyst, you understand.

 

[1nvest]

I have also played around with STM32s, made by STMPA (a Dutch company), and really like their chips, too. It's on a PE of like 8. I'm actually tempted to buy, although I don't have any money. Currently priced at €25.82 . It has a class-action lawsuit filed against it. There's also fears because they are used in cars. But like I say, it's on a cheap rating, they make good products, and are always innovating.

Hi encumber, not trying to knock your strategy, you may well be doing much better than i am!!
But how/when do you define cheap? STMPA has lost 47% of its value from its highs.
back in 2000 it eventually lost 96% of its value. it was cheap at exactly the same point then 20 years ago when it fell a further 90%..you could be waiting another 20 years to get the same point again

 

[encumber]

Chart of STMPA:

Yes, there was a huge drop. I don't have historical data to back it up, but in 2000 there was the tech bubble and PE ratios were likely to have been sky high. Now the PE of STMPA is 8. In fact, it's priced like a cyclical at its peak at the moment. The market might be right, of course.

Their ADG (Automotive and Discrete Group) division accounts for about 45% of sales, a figure that surprises me. That division make dedicated ICs (Integrated Circuits) and power transistors for cars. It's quite surprising how much of their revenue depends on car manufacturing, as I had imagined they would go into more bread-and-butter items.

One things about MCUs (microcontrollers) is that they have gotten a lot cheaper over the years. I recall seeing a vid saying that in like 2000 a pretty simple mcu might set you back $20, or something. They are much cheaper now, and much more powerful, allowing them to be put in a much greater range of products.

STMPA generate about 46% GPM (Gross Profit Margins). selling and general admin are around 9.5%, and R&D around the same figure. So let's say that fixed costs are around 20% of sales. Those fixed costs would likely be trimmed if there was a downturn.

So a bearish scenario would be that we're heading onto recession and people will cut back on consumer discretionary items. It's a fairly plausible one.

If you're bearish on STMPA, then you should probably be very bearish on companies like ARM and TSLA. STMPA relies on Arm processors, so if you expect a decrease in chip usage generally, then Arm royalties will be hit. ARM is trading at a PE of 293, a truly eye-watering valuation. TSLA is trading on a PE of 59, another stratoshperic valuation. Any downturn in chip usage in cars is likely to affect car-makers much more than STMPA.

Markets seem very split at the moment. One the one hand you have US tech/growth stocks (I'm including TSLA in that), and on the other, everything else. So, you have companies like carmaker RIVN (Rivian Automotive), which doesn't even make a profit, yet Jim Cramer calls "great long-term stock". (I am very sceptical on stocks like TSLA and RIVN, viewing them as vastly overhyped).