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Chip Manufacturing King Sets Tone For Semiconductor Earnings Season

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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, whose top holdings include chip giants like Broadcom (AVGO - Free Report) , Texas Instruments (TXN - Free Report) , 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

The largest and most connected semiconductor giant, TSMC, set the chip market earning tune this morning to an incredibly positive note. The company illustrated record financials on both their top and bottom-lines, driving over $12.5 billion in sales (29% growth year-over-year).

The chip market is exploding as 5G technology hits the fan, as well as the next generation of high-performance chips (HPC) hitting the market. You can see this with TSMC’s biggest driver segments, Smartphone, HPC, and internet of things (IoT), all experiencing big boosts this past quarter.

TSMC has also unleashed 5nm transistor technology into the commercial market with Apple’s (AAPL - Free Report) newly debuted 5G iPhone 12 utilizing this innovation, likely being TSMC’s largest purchaser of this technology. TSMC will benefit from the swelling demand for the newest iPhones, iPads, and MacBooks in the years to come.

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 61% and 58%, 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)

Xilinx (XLNX - Free Report) 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).

Analyst Expectations