What happened
Shares of Nvidia (NVDA 4.99%), Advanced micro-systems (AMD 5.82%)and Skyworks Solutions (SWKS 5.03%) were all up on Friday, rising 4.1%, 5.5% and 4% respectively as of 1:54 p.m. EDT.
Neither company has yet reported earnings, although AMD reported worse-than-expected results in its PC division earlier this month.
The synchronous move highlighted a good day for semiconductor stocks in general. Semiconductors’ outperformance likely stems from a combination of better-than-expected earnings from Apple (AAPL 7.55%) and Intel (INTC 10.66%) last night, as well as better than expected economic data in the US this morning.
So what
Apple beat analysts’ estimates for revenue and profit last night, and Intel delivered revenue in line with a breakeven pace.
Expectations were very low heading into each earnings report, as it had been well documented that the PC and handset markets were experiencing a sharp downturn. Therefore, seeing a result that was not as bad as feared is likely to help sentiment today.
Intel also said the PC market remains challenging and the company expects units to remain flat or slightly down next year, even with units declining through 2022. CEO Pat Gelsinger said the market data centers continued. better, even if Intel was losing market share right now.
The 2023 outlook could possibly point to a dip in PCs for some investors, as Gelsinger also said PC usage was still above pre-pandemic levels. And that should mean a higher overall addressable market, despite the short-term correction.
And resilient investment in data centers bodes well for Nvidia and AMD, with AMD taking Intel’s share of data center processors and Nvidia leading the market in AI-focused GPUs.
Wireless chip company Skyworks should also benefit from strong results from Apple, with Skyworks generating just over half of its revenue from the iPhone giant.
Semiconductor stocks are also very sensitive to the economy and tend to react to good or bad macroeconomic news. This morning, the Employment Cost Index released by the Bureau of Labor Statistics showed a slowdown in private sector wage growth, which was welcomed by markets.
Although the three-month seasonally adjusted growth rate was 1.2% and the year-over-year growth was 5.2%, both figures marked a significant slowdown compared to the figures for June growth of 1.6% and 5.7%, respectively.
Wage inflation has been a major source of overall core services inflation, which in turn affects the path of Fed rate increases. These falling figures therefore show that the rapid rate hikes this summer could have the desired effect. This means that the Federal Reserve may not have to go materially higher than its interest rate forecast to slow inflation to its target. This would be good news for the economy as a whole.
Meanwhile, September’s consumer spending measures also came in higher than expected, despite worries about inflation and a deceleration in wages. Solid consumer spending accompanied by lower inflation would be a Goldilocks scenario (neither too hot nor too cold) for the Fed and the economy.
Now what
It’s entirely possible that these semiconductor stocks will continue to rise, even if revenue and earnings are lackluster over the next two quarters. After all, those stocks started falling even as earnings were strong earlier this year, in anticipation of a slowdown caused by inflation and the Fed’s interest rate hikes.
Now that a downturn has arrived, particularly in the PC market, investors may be feeling a bottom and looking to a recovery. The weaker wage inflation numbers are likely helping to boost optimism that the Fed may soon end its restrictive interest rate hikes.
The outlook is still very uncertain, as several factors, including geopolitical issues, could continue to surprise the economy. But today’s data was certainly encouraging.
With shares of Nvidia and AMD down 55-60% on the year, even after the recent rebound, and with Skyworks down 45%, it’s no surprise to see them being bought massively right from the start. first signs of a potential slowdown in inflation.
Billy Duberstein has positions at Apple and has the following options: January 2023 short calls at $210 on Apple. Its clients may hold shares of the companies mentioned. The Motley Fool holds positions and recommends Advanced Micro Devices, Apple, Intel and Nvidia. The Motley Fool recommends Skyworks Solutions and recommends the following options: January 2023 Long Calls at $57.50 on Intel, January 2025 Long Calls at $45 on Intel, March 2023 Long Calls at $120 on Apple, Short Calls from January 2023 at $57.50 on Intel, short calls of January 2025 at $45 on Intel, and short calls of $130 on March 2023 on Apple. The Motley Fool has a disclosure policy.
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