Stocks: Nvidia (NVDA 4.99%), Advanced micro devices (AMD 5.82%)and Skyworks Solutions (SWKS 5.03%) All were up 4.1%, 5.5% and 4% as of 1:54 p.m. EDT on Friday.
None of those companies have yet reported earnings, although AMD reported worse-than-expected results for its PC division earlier this month.
The synchronous move highlighted a good day for semiconductor stocks in general. The better performance of semiconductors was likely due to a combination of better than feared earnings Apple (AAPL 7.55%) and Intel (INTC 10.66%) last night as well as some better than feared US economic data this morning.
Apple beat analyst estimates last night for both revenue and earnings, and Intel delivered bottom-line revenue.
Expectations were very low for each earnings report as it was well documented that both the PC and mobile phone markets are in sharp decline. Therefore, if you want to see a result that was not as bad as feared, it will probably help the emotions today.
Intel also said the PC market remained difficult, with the company projecting units to decline slightly or flat next year, although unit numbers will enter the middle ages as early as 2022. CEO Pat Gelsinger said the data center market is at a standstill. better, although Intel was losing market share at the moment.
The 2023 outlook may signal a bottom for PCs to some investors, as Gelsinger also said PC usage is still above pre-pandemic levels. And this should mean a higher overall target market despite a near-term correction.
And flexible data center investment bodes well for Nvidia and AMD, as AMD takes a share of data center processors from Intel and Nvidia is the market leader in graphics performance focused on artificial intelligence.
Wireless chip company Skyworks is also likely to benefit from Apple’s good results, as Skyworks generates just over half of its revenue from the iPhone giant.
Semiconductor stocks are also very sensitive financially and tend to react to good or bad macroeconomic news. The Labor Cost Index released this morning by the Bureau of Labor Statistics showed private sector wage growth slowing, which was well received by markets.
Although the three-month seasonally adjusted growth rate was 1.2% and the year-on-year growth was 5.2%, both figures slowed significantly from June’s growth figures of 1.6% and 5.7%.
Wage inflation had been one of the main sources of overall core services inflation, which in turn affects the Fed’s rate hike path. So these slowing numbers indicate that this summer’s rapid rate hikes may affect the desired outcome. This means that the Federal Reserve may not have to raise its interest rate forecast significantly higher in order to reduce inflation to its goal. That would be good news for the economy as a whole.
At the same time, September’s consumption readings were also higher than expected, despite concerns about inflation and a slowdown in wages. Fixed consumer spending and falling inflation would be a Goldilocks scenario (neither too hot nor too cold) for the Fed and the economy.
It’s entirely possible that these semiconductor stocks will continue to rise, even if revenue and earnings results are poor over the next couple of quarters. After all, these stocks started to fall, despite a good performance earlier this year, in anticipation of a recession caused by inflation and Fed rate hikes.
Now that the downturn is here, especially in the PC market, investors may be sensing a bottom and waiting for a recovery. Lower wage inflation numbers are likely to add to optimism that the Fed may soon end its restrictive rate hikes.
The outlook remains highly uncertain, as many factors, including geopolitical issues, can still produce surprises in the economy. But today’s data was certainly encouraging.
With shares of Nvidia and AMD down 55-60 percent for the year, even after a recent bounce, and Skyworks down 45 percent, it’s no surprise they’re being bought heavily on the first signs of a possible slowdown in inflation.
Billy Duberstein has positions at Apple and has the following options: short January 2023 $210 calls on Apple. His clients can own shares of the mentioned companies. The Motley Fool has positions on and recommends Advanced Micro Devices, Apple, Intel, and Nvidia. The Motley Fool recommends Skyworks Solutions and recommends the following options: long January 2023 calls $57.50 Intel long January 2025 calls $45 Intel long March 2023 $120 Apple short January 2023 $57.50 Intel short January 2025 $45 calls on Intel and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
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