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Trade Momentum & Chip Suppliers: What You Should Consider
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President Trump and Chinese President Xi made headway in trade discussions at the G-20 Summit this weekend and US chip suppliers are reaping the benefits. I discussed the implication of Huawei on US chip suppliers and the impact it would have as a concession in my article Huawei Ban’s Affliction on US Tech Stocks I released on Friday.
This weekend Huawei was temporarily taken off of the US blacklist, allowing US suppliers to resume business with this smartphone behemoth, boosting US chip stocks. Morning trading has Micron (MU - Free Report) up 4.6%, Qualcomm (QCOM - Free Report) up 2.2%, Broadcom (AVGO - Free Report) up 3.6%, and many other chip stocks surging as depressed Q2 and Q3 expectations for chip suppliers are lifted. The benchmark semiconductor ETF SOXX opened up almost 5% but has traded down this morning to an intraday gain of 2.4%. As you can see below, Q2 has been a volatile time for SOXX and the semi industry.
This semiconductor “sugar rush” may be shor- lived and I wouldn’t recommend jumping into these stocks on this news alone. We need to look at the broader implications of the category itself and where it is expected to head in the near future. With or without the trade war, semis are expected to see slow to negative growth over the next year or two with soft tech output expectations.
China’s economy is slowing, with China’s GDP growth falling to its lowest levels since 2009 and their manufacturing PMI, a leading economic indicator, has slowed to some of its lowest levels in a decade. Whether we are involved in a trade war with China or not is negligible to the fact that their demand for our chips is likely to slow.
Take Away
This short-term surge in semis isn’t something to jump out of your chair at, as an investor you need to sit back and look at the broader industry and how you believe it is valued as well as its future expectations. The semiconductor industry has seen a lot of volatility over the last 52 weeks, which comes with the territory, but this industry isn’t cheap. Currently trading at the higher end of its 2-year forward PE. I would wait for Q2 results to be released for more color on both how they have been performing in this shaky quarter and forward guidance from management on this sector.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Trade Momentum & Chip Suppliers: What You Should Consider
President Trump and Chinese President Xi made headway in trade discussions at the G-20 Summit this weekend and US chip suppliers are reaping the benefits. I discussed the implication of Huawei on US chip suppliers and the impact it would have as a concession in my article Huawei Ban’s Affliction on US Tech Stocks I released on Friday.
This weekend Huawei was temporarily taken off of the US blacklist, allowing US suppliers to resume business with this smartphone behemoth, boosting US chip stocks. Morning trading has Micron (MU - Free Report) up 4.6%, Qualcomm (QCOM - Free Report) up 2.2%, Broadcom (AVGO - Free Report) up 3.6%, and many other chip stocks surging as depressed Q2 and Q3 expectations for chip suppliers are lifted. The benchmark semiconductor ETF SOXX opened up almost 5% but has traded down this morning to an intraday gain of 2.4%. As you can see below, Q2 has been a volatile time for SOXX and the semi industry.
This semiconductor “sugar rush” may be shor- lived and I wouldn’t recommend jumping into these stocks on this news alone. We need to look at the broader implications of the category itself and where it is expected to head in the near future. With or without the trade war, semis are expected to see slow to negative growth over the next year or two with soft tech output expectations.
China’s economy is slowing, with China’s GDP growth falling to its lowest levels since 2009 and their manufacturing PMI, a leading economic indicator, has slowed to some of its lowest levels in a decade. Whether we are involved in a trade war with China or not is negligible to the fact that their demand for our chips is likely to slow.
Take Away
This short-term surge in semis isn’t something to jump out of your chair at, as an investor you need to sit back and look at the broader industry and how you believe it is valued as well as its future expectations. The semiconductor industry has seen a lot of volatility over the last 52 weeks, which comes with the territory, but this industry isn’t cheap. Currently trading at the higher end of its 2-year forward PE. I would wait for Q2 results to be released for more color on both how they have been performing in this shaky quarter and forward guidance from management on this sector.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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