SEMI valuations: stretched. Room for consensus to move higher? Not easy.
The Semi craze continues, for a lot of good reasons – but valuations still matter.
Asia ex Japan TECH is ok
AxJ Tech is trading at + 1 standard deviation on 2024 earnings but on average PEx on 2025. Expensive short-term, properly priced on next year earnings.
This assumes that consensus is correct about very high earnings growth: +67% in 2024 and +36% in 2025 (that’s YoY, sum of US$ net income of top 80 Tech firms Asia-ex). What’s driving this high growth is 1) Korea Memory contributes 3/4th of the growth 2) Taiwan Semi most of the rest.
Consensus also expects 15% earnings growth in 2026, implying that the structural factors continue (AI, HBM) and cyclicality is positive (I guess we all expect lower inflation and rates).
Trailing valuations:
Avg PEx since 2019: 18.8x
Now : 24.8x
Forward valuations:
Avg PEx since 2019: 17.0x
Now : 17.0x
Stretched valuations are obvious for Semis, looking at the SOX.
My SOX proxy is trading at +2 standard deviations or more, both trailing and forward.
Consensus expects net income growth at 57% in 2024, 37% in 2025 and 17% in 2026. This reflects 1) AI-related AVGO, NVDA, TSM but also 2) Memory and 3) Mobile recovery as inventories are cleared and there’s a bit of end-demand growth YoY 4) some recovery in Equipment and Analog / MCU in 2025 (declining in 2024).
So consensus is feeling pretty good about structural new stuff and cyclical recovery at the same time. Yes, probably, but valuations are really up there.
Trailing valuations:
Avg PEx since 2019: 25.8x
Now : 45x
Forward valuations:
Avg PEx since 2019: 21.4x
Now : 31.7x