Semiconductors Are Still Cyclical, But With A Bullish Long-Term Trend

I. Semis Cycle

Historically, the semiconductor industry has been notoriously cyclical. When chip demand outpaces supply, shortages boost prices; higher prices in turn slow demand. High prices boost profit margins and stimulate manufacturers to expand capacity. As demand moderates and new supply comes online, pricing power weakens, and earnings growth slows or even turns negative. In other words, the best cure for high chip prices is high chip prices.