Chip Stocks? Now? Yes

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You expect CEOs to don their rose-colored glasses when speaking of market rebounds. After all, these big shots definitely have an agenda to push.

But independent research firms don't have that problem. So now that well-respected IT analysis firm Gartner says that the semiconductor market is set for a rebound, maybe it's time for the skeptics to start believing in a bounce.

And it all starts at the bottom of the stack. Gartner says that the market for semiconductor manufacturing equipment has bottomed out and will return to full health in a gradual, measured manner.

As semiconductor designers everywhere, from Intel (Nasdaq: INTC  ) to Texas Instruments (NYSE: TXN  ) to NVIDIA (Nasdaq: NVDA  ) , have cut back on infrastructure spending in recent quarters, it's no surprise to see 2009 revenue tracking 45% below 2008 for the chipmaking machinists. But 2010 should rebound by at least 20%, Gartner says.

That's obviously great news for equipment sellers like Applied Materials (Nasdaq: AMAT  ) , chip-testing experts such as Agilent (NYSE: A  ) , and design-software specialists like Mentor Graphics (Nasdaq: MENT  ) . But a recovery this deep in the food chain means new spending by the chip designers, which makes it an early indicator that the semiconductor folks fully expect to see higher order volumes of their own sometime soon.

Follow that logic one more step, and you'll find optimism about the consumer market. Someone like Apple (Nasdaq: AAPL  ) has to buy all of those chips from TI, Intel, and the rest in order to put music players, set-top boxes, and laptops in our grubby little hands.

Count me among the optimists here. The full-market recovery from silicon grinders through chip-shippers to gadget gurus may take a couple of years, but it seems to have started. The time to invest for maximum effect would be right now.

Further Foolishness:

Apple and NVIDIA are Motley Fool Stock Advisor selections. Intel is a Motley Fool Inside Value pick. The Fool wrote puts on Intel. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings or a bio if you like. The Motley Fool is investors writing for investors.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 15, 2009, at 10:53 PM, bpa169 wrote:

    So if you think the time to invest is now, why aren't you investing in anything? I get tired of reading these articles by authors who haven't invested any of their own money. Does anybody else share these sentiments??

  • Report this Comment On June 15, 2009, at 11:09 PM, Seano67 wrote:

    Well I'm assuming the guy writes about tech companies because that's his area of expertise, and if you click on his personal holdings linked at the bottom of his article, you'll see he is invested in quite a few chip makers and tech stocks.

    There are only so many stocks a person can own, and it's unrealistic to expect that writers should only cover stocks in which they have a personal holding. In fact it might be better that they not have a personal stake in what they're writing about, as that may allow them to be a bit more dispassionate about the subject and remove the possibility of any kind of unconscious personal bias.

    I don't know. I don't follow tech stocks because I have no interest in them and absolutely no understanding of them. The subject just does not appeal to me in the least, but to each their own.

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