We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Semiconductor Strength: Bullish Move Just Getting Started?
Read MoreHide Full Article
Technology stocks continue to display signs of outperformance this year, reversing course from last year’s bear market. The Nasdaq 100 index, which boasts the largest tech companies on the cutting edge of transformative themes such as artificial intelligence, big data, and cloud computing, has now exceeded the early February high in a bullish breakout. Semiconductor stocks are helping to push the tech-heavy index to new highs for the year.
The Invesco QQQ Trust ETF (QQQ - Free Report) , which tracks the Nasdaq 100 index, has witnessed steady outperformance, soaring nearly 28% to start the year:
Image Source: StockCharts
Semiconductors Showing Relative Strength
One area of the market that has been navigating the general volatility and helping push the QQQ ETF higher is semiconductors. Looking at the return of the VanEck Vectors Semiconductor ETF (SMH - Free Report) over the past five months, we can see how it has helped big tech rally to year-to-date highs. The SMH ETF has surged over 38% in 2023:
Image Source: StockCharts
The VanEck Vectors Semiconductor ETF has exceeded the Nasdaq 100 ETF’s performance this year by more than ten percentage points. The relative outperformance of the SMH ETF, particularly during a pronounced sentiment shift this year, is a clear sign that these stocks are in high demand. Both the QQQ and SMH ETFs contain a market leader we will discuss below.
This market leader is part of the Zacks Computer and Technology sector. Not surprisingly, this sector has done well this year with a return of nearly 25%:
Image Source: Zacks Investment Research
Historical studies have shown that about half of a stock’s future price appreciation is due to its sector and industry group combination. Also note the favorable characteristics for this sector:
Image Source: Zacks Investment Research
By targeting stocks within leading sectors, we can dramatically improve our stock-picking success. Let’s examine a leading semiconductor company in more detail.
Of course, no conversation around semiconductors would be complete without mentioning the top dog in NVIDIA. NVDA makes up nearly 6% of the total QQQ ETF holdings, as well as more than 15% of the total SMH ETF holdings.
NVIDIA provides graphics along with computing and networking solutions globally. The company offers solutions for gaming platforms, enterprise workstations, software for cloud-based virtual computing and 3-D design, and automotive platforms for infotainment systems. NVIDIA also provides data center platforms and systems for use in artificial intelligence (AI), autonomous driving, accelerated computing, cryptocurrency mining, and robotics.
NVIDIA has been at the forefront of the generative AI (think ChatGPT) conversation, as the company headlines the graphics chips that are designed for complex computing applications. NVDA, currently a Zacks Rank #3 (Hold) stock, has surged nearly 160% this year.
NVDA resumed a long history of earnings beats earlier this week, as the company reported better-than-expected results for the first quarter. Earnings of $1.09/share easily outperformed the $0.92 consensus estimate (18.48% surprise), while revenues of $7.19 billion also exceeded the $6.52 billion projection. The kicker was the upbeat revenue guidance – $11 billion versus the $7.1 billion stated previously.
“The computer industry is going through two simultaneous transitions – accelerated computing and generative AI,” NVIDIA CEO Jensen Huang said in a statement.
Analysts have revised their earnings estimates higher for the current fiscal year by 1.11% over the past 60 days. The Zacks Consensus Estimate now stands at $4.54/share, reflecting potential growth of 35.93% relative to last year. Keep in mind that this figure is likely to increase further as the year goes on.
Image Source: Zacks Investment Research
In a market environment where many companies are witnessing a decline in earnings from the previous year, NVIDIA and other semi stocks are shining a bright light. Strong earnings projections, technology outperformance, and a bullish AI theme all point to continued strength in semiconductors. Make sure to keep an eye on NVIDIA, a leader in this group.
Disclosure: NVDA is a current holding in the Zacks Headline Trader portfolio.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Semiconductor Strength: Bullish Move Just Getting Started?
Technology stocks continue to display signs of outperformance this year, reversing course from last year’s bear market. The Nasdaq 100 index, which boasts the largest tech companies on the cutting edge of transformative themes such as artificial intelligence, big data, and cloud computing, has now exceeded the early February high in a bullish breakout. Semiconductor stocks are helping to push the tech-heavy index to new highs for the year.
The Invesco QQQ Trust ETF (QQQ - Free Report) , which tracks the Nasdaq 100 index, has witnessed steady outperformance, soaring nearly 28% to start the year:
Image Source: StockCharts
Semiconductors Showing Relative Strength
One area of the market that has been navigating the general volatility and helping push the QQQ ETF higher is semiconductors. Looking at the return of the VanEck Vectors Semiconductor ETF (SMH - Free Report) over the past five months, we can see how it has helped big tech rally to year-to-date highs. The SMH ETF has surged over 38% in 2023:
Image Source: StockCharts
The VanEck Vectors Semiconductor ETF has exceeded the Nasdaq 100 ETF’s performance this year by more than ten percentage points. The relative outperformance of the SMH ETF, particularly during a pronounced sentiment shift this year, is a clear sign that these stocks are in high demand. Both the QQQ and SMH ETFs contain a market leader we will discuss below.
This market leader is part of the Zacks Computer and Technology sector. Not surprisingly, this sector has done well this year with a return of nearly 25%:
Image Source: Zacks Investment Research
Historical studies have shown that about half of a stock’s future price appreciation is due to its sector and industry group combination. Also note the favorable characteristics for this sector:
Image Source: Zacks Investment Research
By targeting stocks within leading sectors, we can dramatically improve our stock-picking success. Let’s examine a leading semiconductor company in more detail.
NVIDIA Inc. (NVDA - Free Report)
Of course, no conversation around semiconductors would be complete without mentioning the top dog in NVIDIA. NVDA makes up nearly 6% of the total QQQ ETF holdings, as well as more than 15% of the total SMH ETF holdings.
NVIDIA provides graphics along with computing and networking solutions globally. The company offers solutions for gaming platforms, enterprise workstations, software for cloud-based virtual computing and 3-D design, and automotive platforms for infotainment systems. NVIDIA also provides data center platforms and systems for use in artificial intelligence (AI), autonomous driving, accelerated computing, cryptocurrency mining, and robotics.
NVIDIA has been at the forefront of the generative AI (think ChatGPT) conversation, as the company headlines the graphics chips that are designed for complex computing applications. NVDA, currently a Zacks Rank #3 (Hold) stock, has surged nearly 160% this year.
NVDA resumed a long history of earnings beats earlier this week, as the company reported better-than-expected results for the first quarter. Earnings of $1.09/share easily outperformed the $0.92 consensus estimate (18.48% surprise), while revenues of $7.19 billion also exceeded the $6.52 billion projection. The kicker was the upbeat revenue guidance – $11 billion versus the $7.1 billion stated previously.
“The computer industry is going through two simultaneous transitions – accelerated computing and generative AI,” NVIDIA CEO Jensen Huang said in a statement.
Analysts have revised their earnings estimates higher for the current fiscal year by 1.11% over the past 60 days. The Zacks Consensus Estimate now stands at $4.54/share, reflecting potential growth of 35.93% relative to last year. Keep in mind that this figure is likely to increase further as the year goes on.
Image Source: Zacks Investment Research
In a market environment where many companies are witnessing a decline in earnings from the previous year, NVIDIA and other semi stocks are shining a bright light. Strong earnings projections, technology outperformance, and a bullish AI theme all point to continued strength in semiconductors. Make sure to keep an eye on NVIDIA, a leader in this group.
Disclosure: NVDA is a current holding in the Zacks Headline Trader portfolio.