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.
What's Up for Chip ETFs After Their Best Quarter Since 2020?
Read MoreHide Full Article
Chip or semiconductor stocks just recorded their best quarter since 2020, per CNBC. VanEck Semiconductor ETF (SMH - Free Report) is up about 24.4% so far this year (as of Apr 6, 2023). Tech stocks, in general, were in favor in the first quarter of 2023 as investors believe that the Fed could slow down or stop rate hikes (on signs of slowing inflation) in the near term. As growth sectors like technology fare better in a falling rate environment, chip stocks won.
Moreover, tech stocks also benefited from their safe-haven status amid the banking turmoil in March. U.S. tech stocks hit rough weather last year. But the failures of Silicon Valley Bank and Signature Bank in the United States, the buying of Credit Suisse by the UBS and the panic-selling in Deutsche Bank led investors to look for a safe haven in the equity space. In this pursuit, tech ETFs have lately emerged as winners.
It all depends on the global growth momentum, inflationary pressure, central banks’ moves and the supply-chain recovery. If inflationary pressure comes down and the central banks act dovish, this would be great news for the tech space (and chip too).
However, there are some concerns. The electric car behemoth Tesla (TSLA) recently said that it is using fewer silicon carbide wafers since silicon carbide is an expensive semiconductor. The latest announcement went against the semiconductor space.
In fact, this could be a trend in the EV market in the coming days as many EV makers may follow Tesla’s footsteps. However, this is just the beginning. It would take a whole lot of time for the deployment of silicon carbide to be no longer in use.
The global economy is slowing. Some big economies may witness recession ahead. Consumers will also start reducing spending, which will result in struggling PC and smartphone demand. Then, enterprises will start to reduce spending in anticipation of a global recession. These are huge headwinds for the chip market.
An industry survey for Electrical Equipment, Appliances & Components in the United States revealed that new orders have started to ease in March. The supply -chain disruption — particularly in electronics — is still massive compared to the pre-pandemic conditions. The survey for Transportation Equipment also mentioned that “sales are slowing at an increasing rate.” These are alarming signs for the growth of the semiconductor space.
Any Ray of Hope?
Having said all, we would like to note that if the global economy manages a soft landing ahead instead of a recession, things may not prove detrimental for the chip space. This is especially true given the lucrative valuation of the semiconductor ETFs despite the recent rally.
SPDR S&P Semiconductor ETF (XSD - Free Report) , VanEck Semiconductor ETF,iShares Semiconductor ETF (SOXX - Free Report) , First Trust Nasdaq Semiconductor ETF (FTXL - Free Report) and Invesco PHLX Semiconductor ETF (SOXQ - Free Report) have P/E ratios of 20.85X, 20.35X, 20.34X, 18.91X and 15.08X, respectively. The valuation looks pretty cheaper when compared with 22.70X P/E owned by tech-heavy Nasdaq-100 ETF Invesco QQQ Trust (QQQ - Free Report) .
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
What's Up for Chip ETFs After Their Best Quarter Since 2020?
Chip or semiconductor stocks just recorded their best quarter since 2020, per CNBC. VanEck Semiconductor ETF (SMH - Free Report) is up about 24.4% so far this year (as of Apr 6, 2023). Tech stocks, in general, were in favor in the first quarter of 2023 as investors believe that the Fed could slow down or stop rate hikes (on signs of slowing inflation) in the near term. As growth sectors like technology fare better in a falling rate environment, chip stocks won.
Moreover, tech stocks also benefited from their safe-haven status amid the banking turmoil in March. U.S. tech stocks hit rough weather last year. But the failures of Silicon Valley Bank and Signature Bank in the United States, the buying of Credit Suisse by the UBS and the panic-selling in Deutsche Bank led investors to look for a safe haven in the equity space. In this pursuit, tech ETFs have lately emerged as winners.
Apple (AAPL - Free Report) gained 30%, while NVIDIA (NVDA - Free Report) surged more than 90% in Q1. Moreover, the recent hype over artificial intelligence on ChatGpT’s success also favored Nvidia. Now, Nvidia is offering generative AI cloud services and hardware for enterprises (read: Best & Worst Performing ETF Areas of Q1 2023).
What Lies Ahead?
It all depends on the global growth momentum, inflationary pressure, central banks’ moves and the supply-chain recovery. If inflationary pressure comes down and the central banks act dovish, this would be great news for the tech space (and chip too).
However, there are some concerns. The electric car behemoth Tesla (TSLA) recently said that it is using fewer silicon carbide wafers since silicon carbide is an expensive semiconductor. The latest announcement went against the semiconductor space.
In fact, this could be a trend in the EV market in the coming days as many EV makers may follow Tesla’s footsteps. However, this is just the beginning. It would take a whole lot of time for the deployment of silicon carbide to be no longer in use.
The global economy is slowing. Some big economies may witness recession ahead. Consumers will also start reducing spending, which will result in struggling PC and smartphone demand. Then, enterprises will start to reduce spending in anticipation of a global recession. These are huge headwinds for the chip market.
An industry survey for Electrical Equipment, Appliances & Components in the United States revealed that new orders have started to ease in March. The supply -chain disruption — particularly in electronics — is still massive compared to the pre-pandemic conditions. The survey for Transportation Equipment also mentioned that “sales are slowing at an increasing rate.” These are alarming signs for the growth of the semiconductor space.
Any Ray of Hope?
Having said all, we would like to note that if the global economy manages a soft landing ahead instead of a recession, things may not prove detrimental for the chip space. This is especially true given the lucrative valuation of the semiconductor ETFs despite the recent rally.
SPDR S&P Semiconductor ETF (XSD - Free Report) , VanEck Semiconductor ETF,iShares Semiconductor ETF (SOXX - Free Report) , First Trust Nasdaq Semiconductor ETF (FTXL - Free Report) and Invesco PHLX Semiconductor ETF (SOXQ - Free Report) have P/E ratios of 20.85X, 20.35X, 20.34X, 18.91X and 15.08X, respectively. The valuation looks pretty cheaper when compared with 22.70X P/E owned by tech-heavy Nasdaq-100 ETF Invesco QQQ Trust (QQQ - Free Report) .