Friday, May 7

Chipmakers are on pace for their best ever start to a year

But, amid investors’ newfound optimism and more encouraging trends in the semiconductor industry, chip stocks have rallied more than 31 percent off of its recent low hit on Dec. 26. The Federal Reserve’s move to pause interest rate hikes has bolstered high-flying growth names like Advanced Micro Devices and Micron. Both of these names are among the best performers this year, with AMD up more than 27 percent and Micron up more than 23 percent. Rising rates tend to hurt these stocks as investors adjust to the new environment.

Chipmakers’ rally has come despite a mixed set of earnings reports over the past several weeks. On Friday, Broadcom jumped more than 8 percent after reporting better-than-expected results and issued encouraging guidance for the rest of 2019. But its peers have not been as successful in assuaging investors’ concerns. In late January, Nvidia reported its first quarterly year-over-year revenue decline in five years, while Intel lowered its outlook for the year, citing ongoing trade concerns. Qorvo, meanwhile, issued guidance well below Wall Street expectations in its report in early February.

But that hasn’t stopped investors from jumping in, as many point to improving signs about the U.S. and global economy.

“These days the semiconductor companies have their tentacles in everything,” CNBC’s Jim Cramer, host of “Mad Money”, said this week. “Now, I often tell you that housing punches above its weight when we talk about the economy. If housing’s strong, then the strength might spread to banks and retail. These days, in the new global economy dominated by data, the semiconductor stocks punch well above their weight, just like housing.”

Nvidia’s $6.8B bid to buy Israeli chipmaker Mellanox has also helped renew investors’ faith in this beaten-down sector. Nvidia beat out several other potential suitors, including rival Intel, and some see the move as evidence that these companies are more aggressively pursuing new growth channels.

The deal, if approved, would mark Nvidia’s biggest ever acquisition as it pushes into the growing data center market. The stock has now surged more than 27 percent to start the year, but it still down 42 percent from its most recent peak in early October.

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