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.
Is Fading Crypto Demand At All a Threat to Semiconductor ETFs?
Read MoreHide Full Article
The once-soaring semiconductor space had hit the wall this year with ETFs returning more-or-less 3% so far (as of Aug 16, 2018). Factors that thwarted growth in the space this year were news of Nvidia’s (NVDA - Free Report) suspension of self-driving car tests on public roads in March, heightened trade war talks between the United States and China and the slump in cryptocurrency price (read: Should You Snap Up Downtrodden Semiconductor ETFs Now?).
Falling Crypto Demand
Semiconductor ETFs have been on a bumpy ride so far this year. And to make matters worse, Nvidia’s shareslost about 5% in after-hour trading on Aug 16 after the company indicated that cryptocurrency-fueled demand had dried out and its sales guidance was below Wall Street targets. Investors should note that mining of cryptocurrencies needs the usage of semiconductors.
Nvidia earlier guided sales for cryptocurrency chips for the fiscal second quarter ended Jul 29 to be about $100 million, while actual revenues came in at only $18 million. This is in stark contrast to $289 million (almost a 10th of Nvidia's revenues) recorded in the prior quarter.
Investors should note that one of the key cryptocurrencies, bitcoin prices, have fallen about 67% this year to $6314 (as of Aug 16) from December’s high of $19,343, indicating trouble in the space.
Several regulatory agencies and central banks are doubtful about the merit of cryptocurrencies like bitcoin.The Securities and Exchange Commission (SEC) is tensed about the extreme price volatility in cryptocurrencies. Several central banks have also issued warnings against it (read: Bitcoin Falls After SEC Postpones ETF Decision).
Needless to say, such news is likely to weigh on semiconductor ETFs in the coming trading sessions. But should you be spooked by the falling crypto demand?
Areas That Can Bolster Semiconductor ETFs
Upbeat Sales Fundamentals
Global sales rose more than 20% year over year for 15 successive months. Also, upbeat data on personal computer (PC) shipments, which have been weak over the past several years, should boost investors’ confidence in the sector. This is especially true as global PC shipments had enjoyed the strongest quarter in six years with 2.7% growth in Q2, per the International Data Corp (IDC) and the first year-over-year increase of 1.4% since first-quarter 2012, according to Gartner (see: 5 Top-Ranked Tech ETFs to Buy on Strong PC Growth).
Rise of Artificial Intelligence
Artificial Intelligence is a hot theme now. The rapid adoption of advanced information technologies including cloud, Internet of Things, autonomous cars, gaming, wearables, drones and artificial intelligence should keep supporting semiconductor ETFs.
One of the reasons why Semiconductor stocks took a beating this year was the trade truce between the United States and China. Per Morgan Stanley equity strategists, “semiconductor and semiconductor equipment companies have the highest revenue exposure to China at 52%” and are thus exposed to maximum risks on rising trade tensions.
Trump’s tax reform is another tailwind for the space. Big semiconductor companies have huge cash piles overseas and are likely to bring that cash back thanks to the one-time repatriation tax and overall lower tax rate. After repatriation, this cash may be used to dole out dividends to shareholders and to buy back shares (read: Tax Bill: What ETF Investors Need to Know).
ETFs in Focus
Against this backdrop, investors can definitely play the downtrodden semiconductor ETFs. Below we highlight a few ETFs.
Image: Bigstock
Is Fading Crypto Demand At All a Threat to Semiconductor ETFs?
The once-soaring semiconductor space had hit the wall this year with ETFs returning more-or-less 3% so far (as of Aug 16, 2018). Factors that thwarted growth in the space this year were news of Nvidia’s (NVDA - Free Report) suspension of self-driving car tests on public roads in March, heightened trade war talks between the United States and China and the slump in cryptocurrency price (read: Should You Snap Up Downtrodden Semiconductor ETFs Now?).
Falling Crypto Demand
Semiconductor ETFs have been on a bumpy ride so far this year. And to make matters worse, Nvidia’s shareslost about 5% in after-hour trading on Aug 16 after the company indicated that cryptocurrency-fueled demand had dried out and its sales guidance was below Wall Street targets. Investors should note that mining of cryptocurrencies needs the usage of semiconductors.
Nvidia earlier guided sales for cryptocurrency chips for the fiscal second quarter ended Jul 29 to be about $100 million, while actual revenues came in at only $18 million. This is in stark contrast to $289 million (almost a 10th of Nvidia's revenues) recorded in the prior quarter.
Investors should note that one of the key cryptocurrencies, bitcoin prices, have fallen about 67% this year to $6314 (as of Aug 16) from December’s high of $19,343, indicating trouble in the space.
Several regulatory agencies and central banks are doubtful about the merit of cryptocurrencies like bitcoin.The Securities and Exchange Commission (SEC) is tensed about the extreme price volatility in cryptocurrencies. Several central banks have also issued warnings against it (read: Bitcoin Falls After SEC Postpones ETF Decision).
Needless to say, such news is likely to weigh on semiconductor ETFs in the coming trading sessions. But should you be spooked by the falling crypto demand?
Areas That Can Bolster Semiconductor ETFs
Upbeat Sales Fundamentals
Global sales rose more than 20% year over year for 15 successive months. Also, upbeat data on personal computer (PC) shipments, which have been weak over the past several years, should boost investors’ confidence in the sector. This is especially true as global PC shipments had enjoyed the strongest quarter in six years with 2.7% growth in Q2, per the International Data Corp (IDC) and the first year-over-year increase of 1.4% since first-quarter 2012, according to Gartner (see: 5 Top-Ranked Tech ETFs to Buy on Strong PC Growth).
Rise of Artificial Intelligence
Artificial Intelligence is a hot theme now. The rapid adoption of advanced information technologies including cloud, Internet of Things, autonomous cars, gaming, wearables, drones and artificial intelligence should keep supporting semiconductor ETFs.
Amazon’s (AMZN - Free Report) Amazon Web Services, Microsoft Corp's (MSFT - Free Report) Azure and Alphabet Inc's (GOOGL - Free Report) Google Cloud are purchasing chips to “power artificial intelligence and other functions”, per a source.
US-China to Recommence Trade Negotiations
One of the reasons why Semiconductor stocks took a beating this year was the trade truce between the United States and China. Per Morgan Stanley equity strategists, “semiconductor and semiconductor equipment companies have the highest revenue exposure to China at 52%” and are thus exposed to maximum risks on rising trade tensions.
Now,there is news that the United States and China are ready to restart trade talks or negotiations next week to prevent a full-blown trade war, “the first such meeting since July.” If trade tensions abate, these stocks could soar higher (read: 5 Sector ETFs Most Exposed to Trade Tensions).
Tax Reform Benefit
Trump’s tax reform is another tailwind for the space. Big semiconductor companies have huge cash piles overseas and are likely to bring that cash back thanks to the one-time repatriation tax and overall lower tax rate. After repatriation, this cash may be used to dole out dividends to shareholders and to buy back shares (read: Tax Bill: What ETF Investors Need to Know).
ETFs in Focus
Against this backdrop, investors can definitely play the downtrodden semiconductor ETFs. Below we highlight a few ETFs.
Semiconductor Vaneck Vectors ETF (SMH - Free Report)
Invesco Dynamic Semiconductors Portfolio (PSI - Free Report)
SPDR S&P Semiconductor (XSD - Free Report)
iShares PHLX Semiconductor ETF (SOXX - Free Report)
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>