Nvidia Soars Over 17% in Four Days, Which Other Chip Stocks Should Investors Watch?
With the U.S. Producer Prices increased less than expected in July, hopes for a Fed rate cut in September have once again sparked upbeat sentiment in the U.S. stock market. Overnight, the three major indices surged, with the $Nasdaq Composite Index (.IXIC.US)$ climbing over 2%.
The chipmaker $NVIDIA (NVDA.US)$ surged 6.53% on Tuesday. It has soared 17% in the past four sessions, adding nearly $424 billion in market value to one of the biggest companies in the world.
On Monday, Bank of America analyst Vivek Arya noted Nvidia is one of the firm's top "rebound" picks amid what he expects to be a comeback for semiconductors to end 2024.
"Our base case remains for a semiconductor rebound likely in Q4 as seasonal headwinds dissipate," Arya wrote in a note to clients.
Arya noted that $Broadcom (AVGO.US)$ and $KLA Corp (KLAC.US)$ could also benefit from a rebound as they are the "most profitable vendors in their respective end-markets," in addition to Nvidia.
The $PHLX Semiconductor Index (.SOX.US)$ has rebounded nearly 12% over the past four trading days. Among its constituents, $Monolithic Power Systems (MPWR.US)$, $Broadcom (AVGO.US)$, and $Marvell Technology (MRVL.US)$ all rallied over 14%, while $KLA Corp (KLAC.US)$, $Applied Materials (AMAT.US)$, $Lam Research (LRCX.US)$, and $Micron Technology (MU.US)$ rose more than 12%.
The PHLX Semiconductor Index has fallen by about 20% from its high in July, mainly due to macroeconomic pressures, high earnings expectations, and the risk of a downturn in the automotive market.
Analysts at Citi believe that the semiconductor industry has become attractive following its recent sharp decline. "Our positive view on the semiconductor sector remains unchanged, as we believe the key drivers of the industry's growth—the strong demand for artificial intelligence and memory—continue to be present." the analysts write in a note.
$Micron Technology (MU.US)$ has become a top pick for Citi. Additionally, companies such as $Advanced Micro Devices (AMD.US)$, $Broadcom (AVGO.US)$, $NVIDIA (NVDA.US)$, and $KLA Corp (KLAC.US)$ have also been given buy ratings by Citi.
In addition, the selloff has brought down tech stock valuations to a level that might look more enticing to investors. Nvidia shares currently trade at about 36 times forward earnings, down from about 44 times in June. Overall, the Nasdaq 100 Index trades at about 25 times future earnings.
Moreover, the selloff has attracted legions of dip buyers. Hedge funds to retail investors are bullish on the long-term trajectory of artificial intelligence and may be positioning ahead of what’s expected to be a solid quarterly earnings report from Nvidia, due at the end of the month.
“Now that technical pressure has abated, there’s been a return to the fundamental story, and that’s why we’re seeing this spike.” said Ivana Delevska, founder and chief investment officer of Spear Invest.
Source: Yahoo Finance, Bloomberg
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RDK79 : Qualcomm - great company for decades! The Rodney Dangerfield of chip stocks.