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.

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