Three Plays to Profit on the Global PC Shortage

Shah Gilani|October 18, 2021

Semiconductors… A piece of tech people hardly knew or cared about before there suddenly weren’t enough to go around. The consequences of this shortage have rippled through the tech industry, from smart phones to LEDs lightbulbs, but none were hit harder than computer manufacturers.

The persistence of the work from home movement has increased demand for PCs and desktops, resulting in a flood of orders placed with hardware makers already struggling to keep up. As backlogs grow, vendors aren’t expecting to catch up until mid-2022 at the earliest.

And even then, demand for PCs and the semiconductors that make them possible could continue to grow until the end of this decade. If that comes to pass, the semiconductor industry could double, reaching a revenue between $500 billion to $1 trillion.

That’s a huge tailwind for the entire industry that could line up specific tech companies for great profits.

Which is exactly why I’m watching ASML Holding NV (Nasdaq:ASML).

In basic terms, the company provides chipmakers with everything they need: hardware, software, and services to mass produce patterns on silicon through lithography.

I think ASML is positioned beautifully to benefit from the semiconductor shortage as politicians and business leaders recognize that moving the manufacture of chips away from Asia (due to a hotter than ever cold war between Chinese and American markets) could be a matter of national security.

That forces concerned groups to turn their attention toward non-Asian manufacturers, like the Dutch ASML – increasing demand for the company’s extreme ultraviolet lithography and deep ultraviolet lithography systems.

After a pullback earlier this month, the stock has mounted a comeback, gaining more than 11% since October 4.

The stock has already cleared its 7-day moving average, it’s currently trading right at its 21-day moving average. I think it could easily get back up to its 50-day moving average by the end of this week.

If ASML closes above $807.00, which is just above the current 50-day moving average (by October 29, 2021) I like buying the ASML December 17, 2021 $810/$820 Call Spread for $5.00 or less.

Another tech company I’m eyeing is Dynatrace Inc (NYSE:DT), which provides a software intelligence platform for running and optimizing applications. Its services allow customers to modernize and automatic IT operations, develop and release software, and enhance user experiences.

It serves customers in a wide range of industries, including banking, insurance, retail, manufacturing, travel, and software.

Revenue grew nearly 77% in two years, $703.59 million in 2020. In the last 12 months, revenue has grown again to $757.71 million.

Clearly there’s demand for the company’s platform. That’s not surprising considering everything in today’s world is driven by some sort of software.

I like DT because of its platform’s ability to optimize software to meet increasingly complex and ever-changing needs, but let’s be cautious.

Last week the stock jumped more than 10% during intraweek trading. That’s a little too much too fast for my liking.

If DT closes below $73.90 before the end of this week, let’s buy the DT December 17, 2021 $75/$80 Call Spread for $2.25 or less.

No need to get greedy with this trade. Plan on exiting the DT December 17, 2021 $75/$80 Call Spread trade for a 50% (or more) profit.

And finally, I’m watching Upstart Holdings Inc (Nasdaq:UPST) which operates a cloud- based artificial intelligence (AI) lending platform that aggregates consumer demand for loans and connects it to its network of the company’s AI-enabled bank partners.

UPST doesn’t lend out any money, it simply generates revenue by connecting consumers, banks, and institutional investors through a shared AI lending platform.

Revenue 396.66% in just three years, landing at $227.6 million in 2020, and that number has doubled to $444.43 million over the last 12 months.

As good as those numbers are I think the stock could see a brief pullback after gaining more than 28% in last week’s trading.

At this point, buy the UPST November 19, 2021 $360/$350 Put Spread for $5.00 or less.

But, just like the DT recommendation, there’s no need to get greedy. Plan on exiting the UPST November 19, 2021 $360/$350 Put Spread trade for a 50% profit, or if UPST trades up to $410 or more.

Cheers,

Shah