US semiconductor companies will be under closer scrutiny from investors in the coming weeks after divergent reports from two industry leaders abroad sparked a choppy few days of trading.
Because semiconductors are key components in a wide range of products, chipmakers and related equipment companies are closely watched to get a picture of the economy. Wall Street also watches stocks as indicators of overall market trends.
This year, the industry has been at the center of enthusiasm for artificial intelligence that is fueling the stock market to record highs, culminating in massive gains by Nvidia (NASDAQ:NVDA), the poster child for artificial intelligence.
“It’s vital that these chip stocks hold up,” said Matt Maley, chief market strategist at Miller Tabak. “If they fall, that weighs on the rest of the market.”
The Philadelphia SE Semiconductor index has retreated after rising more than 40% in the first half of the year. It’s now up about 25% in 2024 versus a 22.5% gain for the benchmark S&P 500.
Semiconductor and related equipment stocks account for 11.5% of the S&P 500’s weighting. Nvidia, which trails Apple (NASDAQ:AAPL) as the largest company by market value, has a 6.8% weighting in the index .
The industry had its fair share of drama last week. Chip stocks fell on Tuesday after equipment maker ASML ( AS:ASML ), Europe’s largest technology company, forecast lower-than-expected sales and bookings for 2025. But the group rebounded on Thursday after Taiwan Semiconductor Manufacturing Co, which makes advanced chips used in artificial intelligence applications, said it beat forecasts by 54% of its quarterly earnings.
Following the dueling announcements, the SOX semiconductor index is down 2.5% so far this week, with the S&P 500 up 0.5%.
The semiconductor group could get its next data from upcoming corporate reports, including from Texas Instruments ( NASDAQ:TXN ) and equipment company Lam Research ( NASDAQ:LRCX ) next week. Texas Instruments’ products are used in a wide range of applications, including automotive and industrial, and could be a barometer of whether those areas that have been sluggish for the chip industry are beginning to recover, said Daniel Morgan, portfolio manager of Synovus (NYSE:SNV) Trust. Overall, Morgan said, the semiconductor group is trading at 5.6 times price-to-book valuation, which he said is fair, noting that the group exceeded 8 times price-to-book levels in 2021. The report Advanced Micro Devices’ ( NASDAQ:AMD ) earnings call next week will provide a first glimpse of AI-related demand ahead of Nvidia’s highly anticipated report due late next month. If AMD’s 2025 forecast for its AI chips is strong, “that will be bullish for the industry,” Maley said. Semiconductor reports are expected to cap a busy week for U.S. corporate earnings overall, with well over 100 S&P 500 companies scheduled to report, including Tesla (NASDAQ:TSLA ), Coca-Cola (NYSE: KO) and IBM (NYSE:IBM).
“The (semiconductor) group is very important, if only because of the market capitalization it carries,” said Chuck Carlson, managing director of Horizon Investment Services.
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Reference;
Reuters (2024) Wall Street zeroes in on semiconductors after turbulent week By Reuters, Investing.com. Investing.com. Available at: https://www.investing.com/news/economy-news/wall-street-zeroes-in-on-semiconductors-after-turbulent-week-3671907 (Accessed: 20 October 2024).
