Will Semiconductor ETFs Shine Again In Q3 Earnings?

Semiconductor stocks have been the star performers this year in the broader technology space thanks to solid earnings, consolidation activities and innovative technologies. New areas such as autonomous cars, cloud computing, gaming, wearables, and Internet of Things (IoT) are fueling growth in the sector, offsetting struggling traditional businesses like PCs and smartphones (read: Profit from the Semiconductor Rally with These ETFs).

Most of the rally came in the last earnings season, which turned out to be stellar for chipmakers. Majority of them reported better-than-expected earnings. This pushed the stocks higher. In particular, iShares PHLX Semiconductor ETF SOXX, VanEck Vectors Semiconductor ETF SMH and PowerShares Dynamic Semiconductors Fund (TO:PSI) have risen 12.1%, 13.2% and 13.5%, respectively, over the past three months, beating the broad technology fund XLK by a wide margin. XLK gained 5.9% in the same time frame. Will this outperformance continue in this earnings season as well?

Let us delve into the earnings picture of major chipmakers like Intel (NASDAQ:INTC) , Texas Instruments (NASDAQ:TXN) , Qualcomm (NASDAQ:QCOM) and NVIDIA (NASDAQ:NVDA) that have higher allocation to these ETFs and have the power to move the funds up or down as Q3 earnings season unfolds. SMH has the largest concentration in these four firms with a combined share of 34.2%, followed by 32.3% for SOXX and 20.6% for PSI (read: Semiconductor ETF Hits New 52-Week High).

What’s in Store?

Intel is slated to release earnings after market close on October 18. The stock has seen solid earnings estimate revision of seven cents over the past 90 days for the yet-to-be-reported quarter, representing substantial year-over-year growth of 13%. It has a Zacks Rank #1 (Strong Buy) and an Earnings ESP of +1.39%, indicating a higher probability of beating estimates this quarter. Further, the world’s largest chipmaker delivered positive earnings surprises in the last four quarters, with an average beat of 11.86%. The stock has a solid Value Style Score of ‘B’ but both its Growth and Momentum Style Score of ‘D’ look wretched.

Texas Instruments has a Zacks Rank #2 (Buy) and an Earnings ESP of 0.00%, which makes surprise prediction difficult. It delivered an average positive earnings surprise of 6.68% in the last four quarters. The Zacks Consensus Estimate for third-quarter 2016 moved up by five cents over the past three months. It represents substantial earnings growth of 13.2% from the year-ago quarter. Further, the stock has a Growth and Momentum Style Score of ‘B’ each and a Value Style Score of ‘C’. The company is expected to report after the closing bell on October 26 (see: all the Technology ETFs here).

Qualcomm has a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00% that makes surprise prediction difficult. Its earnings surprise track record over the past four quarters is good, with an average positive surprise of 13.22%. The stock has witnessed positive earnings estimate revision of 3 cents over the past 90 days for the yet-to-be-reported quarter and is expected to see substantial earnings growth of 24% year over year. The stock has a Value and Growth Style Score of ‘B’ each and a Momentum Style Score of ‘C’. The company will report after the opening bell on November 2.

NVIDIA is expected to release its earnings report on November 11. It has a Zacks Rank #2 and an Earnings ESP of +8.93%, which indicates a likely beat this quarter. The company delivered positive earnings surprises in the last four quarters, with an average beat of 28.53% and saw solid earnings estimates revision of 14 cents over the past three months for the to-be-reported quarter. Further, the stock has a solid Growth and Momentum Style Score of B each but an unfavorable Value Style score of ‘D’.

Conclusion

Given the fact that most of the companies in the space have a track record of earnings beat and are expected to record earnings surprises in Q3 as well, semiconductor ETFs will certainly get a boost in the coming days. Currently, SOXX and PSI have a Zacks ETF Rank of #1 while SMH has a Zacks ETF Rank of #2, suggesting their outperformance is likely to continue (read: Can Semiconductor ETFs Continue Their Rally?).

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QUALCOMM INC (QCOM): Free Stock Analysis Report

INTEL CORP (INTC): Free Stock Analysis Report

TEXAS INSTRS (TXN): Free Stock Analysis Report

NVIDIA CORP (NVDA): Free Stock Analysis Report

SPDR-TECH SELS (XLK): ETF Research Reports

ISHARS-PHLX SEM (SOXX): ETF Research Reports

PWRSH-DYN SEMI (PSI): ETF Research Reports

VANECK-SEMICON (SMH): ETF Research Reports

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