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Should You Be Buying Semiconductor Stocks Right Now?
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Everybody likes a good comeback story. Whether it be Robert Downey Jr. recovering from addiction, Lance Armstrong returning after a battle with cancer, or the Star Wars franchise coming back after the abomination that was the prequel films, our society loves to give things a second chance.
On the stock market, this year’s inspirational comeback was in the semiconductor industry. After an abysmal 2015 that saw the iShares PHLX Semiconductor ETF (SOXX - Free Report) lose over 2%, stocks across the semiconductor landscape have rebounded well this year.
Shares of SOXX have gained about 21% year-to-date, while the VanEck Vectors Semiconductor ETF (SMH - Free Report) and the SPDR S&P Semiconductor ETF (XSD - Free Report) are up 23% and 17%, respectively.
To some, the performance of semiconductor stocks recently might be surprising. The demand for PCs has certainly not picked up again, and mobile phone sales remain inconsistent (just ask Apple! (AAPL - Free Report) . Nevertheless, semiconductor companies are succeeding based on how well they’ve adapted to the changing demands of the market.
Instead of focusing on parts for personal computers, certain semiconductor manufacturers have turned their attention to the production of new data centers used for cloud computing. Other companies are seeing an increase in demand thanks to the need for chips for Internet of Things products, while other companies are ramping up efforts to work the automotive industry as carmakers turn to self-driving technology.
For example, when Nvidia (NVDA - Free Report) reported its second-quarter earnings a couple of weeks ago, the company cited 50% growth in its Data Centers division for its impressive performance. The company also saw 18% growth in its Gaming division, another area that has seen demand increase as competitive gaming has become more mainstream.
Intel (INTC - Free Report) , another giant in the industry, cited 5% growth in its Data Centers division and 2% growth in its Internet of Things division as the main drivers of performance in its most recent earnings report. Intel is currently a Zacks Rank #2, while Nvidia is a Zacks Rank #1 (Strong Buy).
Strong Zacks rankings are becoming the norm for companies in the semiconductor business right now. The industry is rather fragmented, which causes certain subgroups of companies to be scattered throughout the Zacks Industry Rank list, but our latest count has at least five of these groups in the top 10% of the list.
At this point, the only issue with semiconductor stocks is that they have already risen so much that it’s uncertain whether they can break into a new range. However, we are now on the other side of what was an impressive earnings season for the industry, which means that estimate revisions are pouring in.
As long as analysts continue to be bullish on semiconductor companies, and as long as these companies continue to perform well, semiconductor stocks will be some of the best performing stocks on the market.
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Should You Be Buying Semiconductor Stocks Right Now?
Everybody likes a good comeback story. Whether it be Robert Downey Jr. recovering from addiction, Lance Armstrong returning after a battle with cancer, or the Star Wars franchise coming back after the abomination that was the prequel films, our society loves to give things a second chance.
On the stock market, this year’s inspirational comeback was in the semiconductor industry. After an abysmal 2015 that saw the iShares PHLX Semiconductor ETF (SOXX - Free Report) lose over 2%, stocks across the semiconductor landscape have rebounded well this year.
Shares of SOXX have gained about 21% year-to-date, while the VanEck Vectors Semiconductor ETF (SMH - Free Report) and the SPDR S&P Semiconductor ETF (XSD - Free Report) are up 23% and 17%, respectively.
To some, the performance of semiconductor stocks recently might be surprising. The demand for PCs has certainly not picked up again, and mobile phone sales remain inconsistent (just ask Apple! (AAPL - Free Report) . Nevertheless, semiconductor companies are succeeding based on how well they’ve adapted to the changing demands of the market.
Instead of focusing on parts for personal computers, certain semiconductor manufacturers have turned their attention to the production of new data centers used for cloud computing. Other companies are seeing an increase in demand thanks to the need for chips for Internet of Things products, while other companies are ramping up efforts to work the automotive industry as carmakers turn to self-driving technology.
(Also Read: Your Ultimate Guide to the Self-Driving Car Market & How to Invest in the "Internet of Things")
For example, when Nvidia (NVDA - Free Report) reported its second-quarter earnings a couple of weeks ago, the company cited 50% growth in its Data Centers division for its impressive performance. The company also saw 18% growth in its Gaming division, another area that has seen demand increase as competitive gaming has become more mainstream.
Intel (INTC - Free Report) , another giant in the industry, cited 5% growth in its Data Centers division and 2% growth in its Internet of Things division as the main drivers of performance in its most recent earnings report. Intel is currently a Zacks Rank #2, while Nvidia is a Zacks Rank #1 (Strong Buy).
(Also Read: Here's Why Nvidia is a Zacks Rank #1 (Strong Buy) Stock)
Strong Zacks rankings are becoming the norm for companies in the semiconductor business right now. The industry is rather fragmented, which causes certain subgroups of companies to be scattered throughout the Zacks Industry Rank list, but our latest count has at least five of these groups in the top 10% of the list.
At this point, the only issue with semiconductor stocks is that they have already risen so much that it’s uncertain whether they can break into a new range. However, we are now on the other side of what was an impressive earnings season for the industry, which means that estimate revisions are pouring in.
As long as analysts continue to be bullish on semiconductor companies, and as long as these companies continue to perform well, semiconductor stocks will be some of the best performing stocks on the market.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>