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Top Chip Stocks To Watch As They Kickoff Q3 Earnings

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The semiconductor sector has been on fire in 2020. The pandemic forced rapid digitalization into every corner of the economy, as the world adapts to the "stay at home" initiative. The robust digital tailwind boosted the stocks that make up the backbone of technology, aka digital chips.

iShares semiconductor tracking ETF (SOXX - Free Report) , whose top holdings include chip giants like Broadcom (AVGO - Free Report) , Texas Instruments (TXN), Qualcomm (QCOM - Free Report) , Nvidia (NVDA - Free Report) , and Intel (INTC - Free Report) , has driven more than 28% returns for investors since the beginning of the year. This represents an alpha of more than 20% above the broader S&P 500 index.

Earnings to Watch 

Now the chip sector's outsized returns will be put to the test as Q3 earnings commence. We have an exciting line up of first-class semiconductor businesses releasing earnings over the next week. Below is a timeline of key chip earnings to focus on.

TSMC ((TSM - Free Report) )

The largest and most connected semiconductor giant is set to release its September quarter earnings tomorrow morning (Oct. 15th). This will set the tone for the chip's price action this earnings season. TSMC is Silicon Valley's go-to semiconductor manufacturer because of its enormous scale and cutting-edge expertise that competitors can't match. Today, the company controls 56% of the global foundry (chip manufacturing) market, which continues to grow as TSMC eviscerates its competition.  

TSMC's figures tomorrow with allow us to assess the performance of the different chip niches. I expect that 5G related technology will illustrate a summer boost along with high-performance computing (HPC) as data center hyperscaling comes back into play with the accelerating cloud-computing, automation, and AI markets.

For more color on TSMC and two other chip leaders, check out my recent articles: 3 Chip Stocks That Are Changing The World

Cadence Design Systems ((CDNS - Free Report) )

Cadence and its chip design duopoly partner Synopsys (SNPS - Free Report) have boomed in 2020 thus far, nearly perfectly tracking each other and driving returns of 64% and 59%, respectively. You can see both of their relative performance below.

These two enterprises help with the chip design process, providing chip developers with the proper software and IP to develop the next big innovations.

CDNS's massive gains will be put to the test when it reports its September quarter earnings next Monday. The performance of these two companies provides us with insight into the level of innovation-focused investments. Growing investments in R&D and IP illustrates that this space is accelerating.

Xilinx ((XLNX - Free Report) )

XLNX is a stock that has made the front page in recent days with rumors spreading about a potential acquisition by AMD (AMD - Free Report) . This strategic acquisition would help the combined enterprise better penetrate the data center market. AMD's claim to fame is its more "affordable" CPU/GPU chips. These chips are becoming best-in-class as the company keeps itself ahead of the innovative curve.

Still, AMD has yet to break into the massive data center market like its top competitors. Acquiring Xilinx will better equip the enterprise for competition in this space. This potential deal's price may be altered by XLNX's quarterly report, which is expected to be released next Wednesday (October 21st) alongside Lam Research (LRCX - Free Report) and Ericsson (ERIC - Free Report) .

Intel ((INTC - Free Report) )

The company that pioneered the earliest chip technology has been digging itself a grave of obsolescence in recent years, and now it needs to dig itself out. Intel used to be the biggest & baddest chip company on the block, but its recent missteps have pushed this once caption of innovation out of the chip limelight.

Intel has disappointed me in recent years, with supply chain issues and production delays that have pushed the chip king out of step with the innovative curve. The previously viewed "value" CPU player, AMD (AMD - Free Report) , is now taking market share in space that Intel has been building for decades.

We will find out if Intel has made moves this past quarter to get back on track in its earning release next Thursday (October 22nd).

Zacks Consensus Estimates

Final Thoughts

The world of chips is just beginning to heat up as the 4th Industrial Revolution begins. The opportunity in semiconductors remains ripe for the technological explosion that is initiating the Roaring 20s.

Full economic recovery is far from achieved, and uncertainty about the future remains high. Don't forget to focus on forward guidance and sentiment from management this earnings season as it will be a pivotal catalyzer to this sector's price action going through the next week.

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