Semiconductor ETFs Touch New Highs Ahead of Q3 Earnings

Sweta Killa Published on October 24, 2017

Semiconductor stocks have been on tear this year on improved overseas demand and innovative technologies. New areas such as autonomous cars, cloud computing, gaming, wearables, VR headsets, drones, virtual reality devices, Internet of Things (IoT) and artificial intelligence are fueling growth in the sector, offsetting struggling traditional businesses like PCs and smartphones.

In particular, iShares PHLX Semiconductor ETF (SOXX - Free Report) , VanEck Vectors Semiconductor ETF (SMH - Free Report) and PowerShares Dynamic Semiconductors Fund (PSI - Free Report) have been hitting multiple highs lately and are currently leading the tech surge. These funds have been up 9.7%, 10% and 12.1%, respectively, in a month and have crushed the broad technology fund (XLK - Free Report) by a wide margin. XLK has gained 5.1% in the same time frame (read: ETFs Riding High On Bitcoin Surge).

This trend is likely to continue this reporting cycle given that most of the chipmakers are poised to surprise again this quarter. Let’s delve into the earnings picture of major chipmakers like Intel (INTC - Free Report) , Texas Instruments (TXN - Free Report) , NVIDIA (NVDA - Free Report) and Applied Materials (AMAT - Free Report) that have a higher allocation to these ETFs and the power to move the funds up or down as Q3 earnings unfold. SOXX has the largest concentration in the five firms with a combined share of 29.5%, followed by 25.1% for SMH and 20.3% for PSI.

According to the our methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP increases our chances of predicting an earnings beat, while a Zacks Rank #4 or 5 (Sell rated) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

What’s in Store?

Intel is slated to release earnings after market close on Oct 26. It has a Zacks Rank #1 and an Earnings ESP of +0.06%, indicating higher chances of beating estimates this quarter. The stock has seen a positive earnings estimate revision of six cents over the past 90 days for the to-be-reported quarter and delivered a positive earnings surprise of 5.59% on average over the last four quarters. Intel has a VGM Style Score of B.

Texas Instruments has a Zacks Rank #1 and an Earnings ESP of +0.07%. It delivered an average positive earnings surprise of 8.40% in the last four quarters. The Zacks Consensus Estimate for third-quarter 2017 moved up by four cents over the past three months. The stock has a VGM Style Score of C. The company is expected to report after the closing bell on Oct 24 (read: Here's What Investors Need to Know About Soaring Semiconductor ETFs).

NVIDIA, expected to report on Nov 9, has a Zacks Rank #1 and an Earnings ESP of +1.06%. The company delivered positive earnings surprises in the last four quarters, with an average beat of 34.54% and saw positive earnings estimate revision of 16 cents over the past three months for the to-be-reported quarter. However, the stock has a dismal VGM Style Score of F.

Applied Materials has a Zacks Rank #1 and an Earnings ESP of +0.37%. Its earnings surprise track record over the past four quarters is good, with an average beat of 0.66%. Additionally, the stock witnessed a solid earnings estimate revision of nine cents over the past 90 days for the yet-to-be-reported quarter. The stock has a VGM Style Score of B. The company will report on Nov 16.

Conclusion

Given the fact that most of the companies in the space are poised to beat earnings estimates and saw positive estimate revisions, semiconductor ETFs will see a prolonged bullishness. Further, SOXX, SMH and PSI have a Zacks ETF Rank #1, suggesting their outperformance to continue (see: all the Technology ETFs here).

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