Height of Clouds, Depth of Mines


By Monish Chhabra ǀ May 2, 2023

The technology sector continues to ride the buzz created from new innovations. 

While recognizing the promise of these computing technologies, as statisticians, we follow data and whatever shape it takes. 

That shape of data today draws us more towards the building blocks in the real world, rather than the digital. 

In orange below is the stock of a semiconductor equipment supplier, which is a global leader in lithography sector. In blue is a mining company that is one of the largest owners of copper reserves in the world. 

Both graphs cover about three decades of data. The dotted-blue line shows the normalized long-term growth of copper company, while the dotted-orange shows the same for semiconductor company. 

The graphs start from equalized price of 100. Solid-blue line is the best-fit bottom of the price-band for the copper miner. Solid-orange is the best-fit top of the price-band for the chip machine maker. 

There have been 3 distinct periods of one stock riding much above the other, alternatively. We see the 4th such period in the making. 

The semiconductor stock in orange did a massive top in early 2000, and then went nowhere till the end of 2011; about 12 years of being flat. 

The copper miner did a similar top near end-2007, and then went nowhere till the start of 2020; again a lost period of 12 years. 

Currently, we see a big top forming in the computer chip stock since the end of 2021, which carries a substantial risk of low returns over many years to come.

We also see a major bottom forming in the copper company from end-2018 to 2023, similar to the one from end-1998 to 2003. 

Using history as a guide and based on the relative positions of these two stocks in their respective distributions – if the semiconductor stock doubles over the next decade, the copper miner could rise at least 5-times.

For the capital invested this decade - the mines could rise much higher than the clouds. 

This write-up is for informational purpose only. It may contain inputs from other sources, but represents only the author’s views and opinions.  It is not an offer or solicitation for any service or product. It should not be relied upon, used or construed as recommendation or advice.  This report has been prepared in good faith. No representation is made as to the accuracy of the information it contains, nor any commitment to update it.