The cyclical fluctuations of the semiconductor industry resemble a pendulum that never stops, swinging back and forth between extreme pessimism and excessive optimism. Currently, the pendulum is resolutely swinging from the trough towards the recovery side, with outstanding financial reports from companies like North Huachuang and Cambricon ringing a strong note for the industry. However, historical lessons remind us: the peak of a cyclical industry’s prosperity often coincides with the peak of investment enthusiasm, but it may also mark the starting point of potential risks. In the midst of enthusiastic cheers, a cold reflection becomes particularly important.
The Characteristics of Cyclical Industries: High Volatility and High Elasticity
The semiconductor industry, due to its capital intensity, rapid technological iteration, and sensitivity to supply and demand relationships, has become a highly cyclical industry. Its product prices and company profits can fluctuate dramatically with factors such as the global macro economy, industry capital expenditure, and inventory cycles. This characteristic determines that its investment model is fundamentally different from that of stable growth consumer industries: it is more suitable to make contrarian investments when the industry is in a downturn and valuations are dismal, while considering gradual exits when the industry is booming and valuations are high. Attempting to engage in long-term, unwavering ‘value investing’ in the semiconductor industry requires enduring significant market value drawdowns and psychological tests.
The Paradox of Recovery Signals and Overdrawn Expectations
The current performance recovery is real, but the mechanism of the stock market is to reflect the future in advance.A key question is: have current stock prices fully or even excessively reflected this recovery? The 147-fold performance growth of Source Technology is indeed stunning, but if its stock price has already risen several times beforehand, this financial report may precisely become a catalyst for profit-taking and capital exit. Assessing the alignment between performance growth and stock price increases is an important method for determining whether there is an overdrawn expectation.
The Cycle Game of Institutional Investors
Professional institutional investors are well-versed in the ways of cycles. Their approach is usually to begin in-depth research and gradually build positions when the industry is overlooked and financial reports are dismal, enduring long periods of solitude and volatility.During the phase when industry prosperity rises, good news abounds, and retail investors flock in, they instead begin to calmly assess risks and consider gradual reductions in holdings. Their advantage lies in having a longer capital cycle and stricter discipline, enabling them to execute such contrarian operations.
How Individual Investors Can Participate in the Cycle
For individual investors, fully replicating institutional strategies is extremely difficult, but they can draw on the core ideas.First, one must abandon the impulse to chase prices at the cyclical peak. Second, if one is optimistic about the long-term trend of semiconductors, one should patiently wait for the next industry trough or significant market adjustment to seize layout opportunities. Finally, if one already holds positions and has made substantial profits, a reasonable profit-taking strategy should be set, such as following trend lines or dynamic profit-taking, aiming to preserve most of the profits and avoid significant drawdowns from cyclical rotations.
Conclusion: The recovery of the semiconductor industry brings rare investment opportunities, but its strong cyclicality also implies significant volatility risks. Investors must maintain a sense of reverence for the cycle while embracing the industry’s heat. Do not mistake the peak of the cycle for the starting point of growth; instead, use contrarian thinking and strict discipline to guide investments, so as to navigate the pendulum of cycles and secure a share of returns that belongs to oneself.