Semiconductor ETFs in Focus Ahead of Q4 Earnings

The semiconductor space has been surging over the past three months on improving demand from chips suppliers, data centers, PC manufacturers, and mobile phone producers, as well as China. The Philadelphia Semiconductor Index gained more than 30% from a two-year low in mid-October, outperforming the tech-heavy Nasdaq 100 Index, which added about 10% in the same period.

As such, Invesco PHLX Semiconductor ETF SOXQ, iShares Semiconductor ETF SOXX, VanEck Vectors Semiconductor ETF SMH and First Trust NASDAQ Semiconductor ETF FTXL have gained 25.7%, 26.3%, 29.2% and 23.3%, respectively, over the past three months. The strong trend is likely to continue in the weeks ahead as the Q4 earnings season picks up pace. Texas Instruments TXN came up with robust results, beating revenue and earnings estimates for the fourth quarter. The result is expected to add fuel to the sector.

Easing inflation and hopes of a less hawkish Fed fueled the rally in the overall tech sector. Additionally, the analyst Barclays Capital upped its stance on some chip stocks ahead of earnings, suggesting that the worst might be over for semiconductors (read: Is the Worst Over for Semiconductor Stocks & ETFs?).

Semiconductors have been the most important drivers of the overall growth in technology, given the use of chips in day-to-day life from cars, electronic gadgets, to planes and weapons. The demand will continue to trend higher given the increased digitization in various corners like healthcare, transport, financial systems, defense, agriculture and retail, among others.

The rapid adoption of cutting-edge technology like cloud, Internet of Things, autonomous cars, gaming, wearables, VR headsets, drones, virtual reality devices, artificial intelligence, cryptocurrencies, 5G and other advanced information technologies should continue to fuel growth. Further, the introduction of expensive and new-generation chips has been leading to an enhancement in the product mix for semiconductors.

Some other well-known players in the space, such as Intel INTC, Qualcomm QCOM, NVIDIA NVDA and Advanced Micro Devices AMD, will report earnings in the coming days. Let’s delve into the financial picture of the companies that have a higher allocation in the above-mentioned ETFs and the power to move the funds up or down as Q4 earnings unfold. SOXQ is largely concentrated on four firms with a combined share of 28.2%, followed by 24.6% for SOXX, 23.1% for SMH and 13.6% for FTXL.

Per our proven model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Inside Our Earnings Prediction

Intel is slated to release earnings after market close on Jan 26. It has a Zacks Rank #4 and an Earnings ESP of 0.00%. The stock saw negative earnings estimate revision of 3 cents over the past 30 days for the to-be-reported quarter. Intel delivered an earnings surprise of 11.36%, on average, for the preceding four quarters.

Qualcomm has a Zacks Rank #4 and an Earnings ESP of -1.92%. The stock witnessed negative earnings estimate revision of a penny over the past 30 days for the to-be-reported quarter and delivered an earnings surprise of 5.36% in the trailing four quarters, on average. The company is expected to report earnings after the closing bell on Feb 2 (see: all the Technology ETFs here).

NVIDIA, expected to report on Feb 22, has a Zacks Rank #4 and an Earnings ESP of 0.00%. The company delivered a negative earnings surprise of 3.31%, on average, over the past four quarters. It saw no earnings estimate revision over the past 30 days for the quarter to be reported.

Advanced Micro Devices has a Zacks Rank #4 and an Earnings ESP of -0.11%. Its earnings surprise history is impressive, with the average beat being 12.20% for the preceding four quarters. The stock witnessed no earnings estimate revision over the past 30 days for the quarter to be reported. The company is slated to report earnings on Jan 31 after the closing bell.

Conclusion

Though the stocks have an unfavorbale Zacks Rank, semiconductor ETFs might see smooth trading in the weeks ahead as SOXX, SMH and FTXL have a Zacks ETF Rank #1 or 2. This suggests outperformance in the weeks ahead (read: ETFs to Play Nasdaq’s Fastest Start Since 2019).

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Intel Corporation (INTC) : Free Stock Analysis Report

QUALCOMM Incorporated (QCOM) : Free Stock Analysis Report

Texas Instruments Incorporated (TXN) : Free Stock Analysis Report

Advanced Micro Devices, Inc. (AMD) : Free Stock Analysis Report

NVIDIA Corporation (NVDA) : Free Stock Analysis Report

VanEck Semiconductor ETF (SMH): ETF Research Reports

iShares Semiconductor ETF (SOXX): ETF Research Reports

First Trust NASDAQ Semiconductor ETF (FTXL): ETF Research Reports

Invesco PHLX Semiconductor ETF (SOXQ): ETF Research Reports

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