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Zacks Industry Outlook Highlights: Intel, NVIDIA, Xilinx and Facebook

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For Immediate Release

Chicago, IL – August 18, 2017 – Today, Zacks Equity Research discusses the Industry: Semiconductors, including Intel (NASDAQ:INTC Free Report), NVIDIA (NASDAQ:NVDA Free Report), Xilinx (NASDAQ:XLNX Free Report) and Facebook (NASDAQ:FB Free Report).

Industry: Semiconductors

Link: https://www.zacks.com/commentary/125361/semiconductor-industry-outlook---august-2017

The semiconductor industry is made up of 15 sub-sectors (including 4 for semiconductor equipment) within the Technology sector, which is one of the 16 broad Zacks-categorized sectors.

Similar to the Technology sector, Zacks also breaks down each of the other sectors into groups such that there are a total of 264 sub-sectors or industries. These “X” industries are then grouped in two: the top half (i.e., industries with the best average Zacks Rank) and the bottom half (industries with the worst average Zacks Rank). Over the last 10 years, using a one-week rebalance, the top half beat the bottom half by a factor of more than 2 to 1. (Click here to know more: About Zacks Industry Rank)

Therefore the Zacks Industry Rank is a good indicator of investment opportunities within an industry at any given time. Moreover, because stocks in the same X industry have certain common positive or negative factors affecting them, it has been observed that there is some positive correlation between them.  

The X industries pertaining to semiconductor stocks have been tabulated below. The list clearly displays the kind of industries likely to have more winners. The last column enlists our picks, which are basically Zacks Rank #1 (Strong Buy) or Rank #2 (Buy) stocks within the top 132 X industries.

Earnings Trends at a Glance

One of the main factors driving the Zacks Rank for individual stocks is earnings results. Therefore, it makes sense to take a look at how those have been in the last-reported quarter.

From the latest earnings trends report, we see that 80.3% of technology stocks have reported with both top and bottom line results beating the S&P 500. Overall, technology stocks’ earnings were up 17.9% from the year-ago quarter on 9.2% growth. This compares with earnings and revenue growth of 10.8% and 5.8%, respectively. Also, 83.7% of technology stocks beat earnings estimates compared to 74.3% for the S&P 500. A like percentage of technology companies also beat revenue expectations with the S&P 500 averaging much lower at 68.0%.

Major Drivers

This section can be divided into the current and emerging drivers. But before getting into that, it’s important to understand the backdrop. This includes a shrinking traditional market (mainly PCs) that still consumes the bulk of chips as well as several emerging categories that have extremely strong growth potential. Which means that while the industry as a whole may appear sluggish, there are some solid opportunities.

Current Drivers

As far as current drivers are concerned, the most significant are cloud computing, big data and artificial intelligence that are increasing demand for servers and data centers exponentially. Intel (NASDAQ:INTCFree Report) and NVIDIA (NASDAQ:NVDAFree Report) are the strongest positioned here, with Intel’s strength mainly on the enterprise side and NVIDIA’s on the HPC side. Intel is working to challenge NVIDIA, but that will take time.

HPC is where a lot of the innovation is going on and NVIDIA continues to pick up share of spending because of its lead in machine learning. Intel has plans to get in the game with the technology it acquired through Nervana Systems and Altera. Both Intel and NVIDIA are working on hybrid solutions because GPUs do a better job of processing the huge amounts of data to train a neural network while CPUs do a better job of applying that data to a given situation.

Xilinx (NASDAQ:XLNXFree Report) is another important player working with FPGAs on top of ARM-based chips. With a $16 billion artificial intelligence market (according to MarketsandMarkets) by 2020 waiting to be tapped, it’s no wonder that players are going all out to grab their share.

Some disruption is afoot in the enterprise segment as well because of the work done by the Open Compute Project (OCP) that Facebook (NASDAQ:FBFree Report) founded and continues to feed. The social networking company generates huge volumes of data that it needs to store, manage and process as quickly and cost-efficiently as possible.

Zacks Industry Rank

Within the Zacks Industry classification, health insurers are broadly grouped in the Medical sector (one of the 16 Zacks sectors).

We rank 265 industries into 16 Zacks sectors based on the earnings outlook and fundamental strength of the constituent companies in each industry. We put our X industries into two groups: the top half (industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).

Over the last 10 years, using a one-week rebalance, the top half beat the bottom half by more than twice as much. The Zacks Industry Rank is #177 (bottom 34%). The ranking is available on the Zacks Industry Rank page.

Strong Stocks that Should Be in the News

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.


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