U.S. semiconductor companies will get a closer look from investors in the coming weeks after diverging reports from two overseas industry leaders set off a volatile few days of trading.
Because semiconductors are key components in a wide range of products, chip makers and related equipment companies are closely watched for insights into the economy. Wall Street also views stocks as indicators of overall market trends.
This year, the industry has been at the center of the artificial intelligence enthusiasm that has driven the stock market to record highs, highlighted by massive gains from Nvidia NVDA.O, the poster boy for AI.
“It’s vitally important that these chip stocks hold up,” said Matt Maley, chief market strategist at Miller Tabak. “If they go down, that weighs on the rest of the market.”
The Philadelphia SE Semiconductors index has retreated after rising more than 40 percent in the first half of the year. It is now up about 25 percent in 2024, versus a 22.5 percent gain for the benchmark S&P 500 index .SPX.
Semiconductor and related equipment stocks account for 11.5 percent of the S&P 500’s weight. Nvidia, which is closing in Apple as the largest company by market value, it has a 6.8 percent weighting in the index.
The sector had its share of drama last week. Chip shares plunged on Tuesday after equipment maker ASML, Europe’s largest technology company, projected lower-than-expected 2025 sales and bookings. But the group bounced back on Thursday after Taiwan Semiconductor Manufacturing Co 2330.TW, which makes advanced chips used in artificial intelligence applications, reported a 54 percent rise in quarterly profit, beating forecasts.
Following the conflicting announcements, the SOX semiconductor index is down 2.5 percent so far this week, and the S&P 500 is up 0.5 percent.
The semiconductor group could follow cues from impending corporate reports, including those from Texas Instruments and equipment company Lam Research next week.
Texas Instruments products are used in a wide range of applications, including automotive and industrial, and could be a barometer for whether areas that have been slow for the chip industry are starting to recover, said Daniel Morgan, manager of Synovus Trust portfolio.
Overall, Morgan said, the semiconductor group trades at 5.6 times price-to-book valuation, which he said was fair, noting that the group exceeded 8 times price-to-book valuation levels in 2021.
Next week’s AMD.Oearnings report from Advanced Micro Devices will provide an initial glimpse into AI-related demand ahead of Nvidia’s highly anticipated report due out late next month.
If AMD’s forecast for its 2025 AI chips is strong, “it will be bullish for the sector,” Maley said.
The semiconductor reports will come out in a busy week for US corporate earnings overall, with more than 100 S&P 500 companies set to report, including tesla Coca-Cola KO.N and IBM.
“The (semiconductor) group is very important, at least for the market capitalization that comes with it,” said Chuck Carlson, CEO of Horizon Investment Services.
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