What Lies Ahead For Chip ETFs In Q2 Earnings?

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Semiconductors have shown strong resilience amid the coronavirus pandemic on the stay-at-home trend, which has bolstered the demand for gaming chips and data center business. However, the tech sell-off in May led to a brutal decline in chip stocks.

As such, iShares PHLX Semiconductor ETF (SOXX - Free Reportand First Trust NASDAQ Semiconductor ETF (FTXL - Free Reporthave lost about 0.7% and 2.6%, respectively, while VanEck Vectors Semiconductor ETF (SMH - Free Reporthas added 0.3% over the past three months. The trend might reverse in the weeks ahead going into the earnings season.  

Some well-known players in the space like Texas Instruments (TXN - Free Report), Intel (INTC - Free Report), Qualcomm (QCOM - Free Report), NVIDIA (NVDA - Free Report), and Advanced Micro Devices (AMD) will report earnings in the coming days. Let’s delve into the financial picture of the companies that have higher allocation in the above-mentioned ETFs and the power to move the funds up or down as Q2 earnings unfold. SOXX is largely concentrated on five firms with a combined share of 32.5% followed by 29.8% for SMH and 17.6% 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

Texas Instruments is set to report on Jul 21, after market close. It has a Zacks Rank #2 and an Earnings ESP of +1.60%. The stock saw positive earnings estimate revision of a penny over the past 30 days for the to-be-reported quarter. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a good indicator for the stock. The earnings surprise track over the last four quarters has been good, with the beat being 34.1%, on average.

Intel is slated to release earnings after market close on Jul 22. It has a Zacks Rank #2 and an Earnings ESP of -0.40%. The stock saw no earnings estimate revision over the past 30 days for the to-be-reported quarter. Intel delivered an earnings surprise of 17.69%, on average, for the preceding four quarters.

Qualcomm has a Zacks Rank #3 and an Earnings ESP of -0.82%. The stock witnessed no earnings estimate revision over the past 30 days for the to-be-reported quarter and delivered an earnings surprise of 14.60% in the trailing four quarters, on average. The company is expected to report earnings after the closing bell on Jul 28.

NVIDIA, expected to report on Aug 18, has a Zacks Rank #1 and an Earnings ESP of -1.78%. The company delivered an earnings surprise of 11.98%, on average, over the past four quarters. However, it saw negative earnings estimate revision of 3 cents over the past 30 days for the quarter to be reported.

Advanced Micro Devices has a Zacks Rank #2 and an Earnings ESP of +3.41%. Its earnings surprise history is impressive, with the average beat being 13.80% 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 Jul 27 after the closing bell.

Conclusion

As most companies in this space are expected to beat on earnings and have seen positive earnings estimate revision activity, semiconductor ETFs might see smooth trading in the weeks ahead. Further, SOXX, SMH, and FTXL have a Zacks ETF Rank #2 or 3, suggesting their potential for upside.

Disclosure: Zacks.com contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

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William K. 2 years ago Member's comment

The concern with Integrated Circuit manufacturing is the huge investments needed to keep up with the latest popular technology. It works a lot like a mandatory status-symbol race, but with a far higher price to compete. Worse yet, the benefits are not as real, at least in some evaluations.