Semiconductor stocks are breaking out amid a global shortage of microchips. Let’s take a closer look at an industry that’s crushing the market, even with the broader technology sector lagging.
The Philadelphia Semiconductor Index ($SOX) has risen 18 percent so far this year. That’s more than triple the gain of the Nasdaq-100 over the same period, and almost twice the move of the broader S&P 500 index. The industry group hit new all-time highs yesterday. Meanwhile other high-profile names like Apple (AAPL), Tesla (TSLA), Amazon.com (AMZN) and Netflix (NFLX) have been rangebound for months.
A powerful mix of catalysts is driving the trend. Chips have been in high demand for years thanks to mobile devices, videogaming and the cloud computing. Coronavirus fueled even more business as remote workers bought extra laptops and peripherals. Semiconductor foundries next struggled to keep up with orders from carmakers following a brief interruption in auto production. Now, they’re facing a general boom as the economy roars back from last year’s mini-depression.
How good are things going? On Monday, the Semiconductor Industry Association reported sales growth of 14.7 percent in February (the latest month with data). It was the biggest increase since August 2018. The world’s two biggest chipmakers, Taiwan Semiconductor (TSM) and Intel (INTC), are investing more than $120 billion to keep up.
Applied Materials, Lam Research
Those expansion plans have been especially good news for a subset of companies that provide manufacturing equipment. Applied Materials (AMAT) is the largest U.S. player with a market capitalization of $131 billion. It’s also the best performing member of the Nasdaq-100 in 2021, up 66 percent.
Lam Research (LRCX), valued at $95 billion, is next. It’s gained 40 percent since December. Other equipment suppliers include KLA (KLA), ASML (ASML), Teradyne (TER) and Entegris (ENTG).
Intel vs AMD
Another story in the computer-chip space has been the comeback in INTC following years of underperformance. The Dow Jones member rehired former technology head Pat Gelsinger as CEO of the whole company. That’s helped restore confidence in its ability to deliver on newer designs.
The breakout in INTC may have come at the expense of long-time rival Advanced Micro Devices (AMD). AMD stock crushed its larger competitor over the longer term, appreciating 2,700 percent since early 2016 while INTC only rose 93 percent. But since Gelsinger’s appointment, INTC has gained 25 percent versus a 15 percent drop for AMD.
Micron Technology (MU) was the most recent to issue numbers. The memory-chip company beat earnings estimates on March 31 after strong demand and tight supplies allowed management to raise prices for DRAM products. (DRAM, or “dynamic random access,” chips are used in countless electronics and gadgets.) MU plans to reduce capital spending, even as enterprise demand surges. That could help support margins.
Investors will get more information in coming weeks when other major companies like INTC, Qualcomm (QCOM), Nvidia (NVDA) and Broadcom (AVGO) report.
Here are some announced and estimated earnings dates for major semiconductors stocks:
|Security||Date & Time||Business|
|Taiwan Semiconductor (TSM)||4/15 PM (confirmed)||Chip manufacturing|
|Texas Instruments (TXN)||4/20 PM (unconfirmed)||Chip manufacturing|
|ASML (ASML)||4/21 AM (confirmed)||Chip equipment|
|Lam Research (LRCX)||4/21 PM (confirmed)||Chip equipment|
|Intel (INTC)||4/22 PM (unconfirmed)||Chip manufacturing|
|Advanced Micro Devices (AMD)||4/27 PM (unconfirmed)||Chip design|
|Qualcomm (QCOM)||4/28 PM (confirmed)||Chip design|
Trading Options on Semiconductors
Because computer-chip companies are related to each other, they tend to move as a group. Traders interested in following semiconductor stocks may want to focus on symbols with the heavy options activity because they offer better liquidity. Here are the 10 busiest semiconductor-related stocks and exchange-traded funds (ETFS), ranked by average daily option volume in the last month.
|Advanced Micro Devices (AMD)||372,000||Chip design|
|Nvidia (NVDA)||148,500||Chip design|
|Intel (INTC)||143,000||Chip manufacturing|
|Micron Technology (MU)||141,000||Memory chips|
|Taiwan Semiconductor (TSM)||85,000||Chip manufacturing|
|Qualcomm (QCOM)||74,000||Chip design|
|Marvell Technologies (MRVL)||48,500||Chip design|
|Applied Materials (AMAT)||46,500||Chip equipment|
|Direxion Daily Semiconductor Bull 3x (SOXL)||41,500||Leveraged ETF|
|Market Vectors Semiconductor (SMH)||25,500||Conventional ETF|