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Chip ETFs Hitting Highs Ahead of Q1 Earnings

Sweta Killa
Western Digital (WDC) to be battered by uncertain macroeconomic environment, declining trend in PC shipments and softness in NAND flash pricing trends.

The semiconductor sector has been sizzling with most stocks displaying a bull run. Strong optimism over the deal between the two largest countries (United States and China) to end a year-long trade war, which badly shook the industry last year, has renewed strength among the chip makers. This is because chipmakers get a lot of exposure from China.

Evidently, iShares PHLX Semiconductor ETF SOXX and VanEck Vectors Semiconductor ETF SMH have gained nearly 35% share each this year. This uptrend is expected to continue this earnings season given that most stocks are expected to beat on earnings (read: Will Semiconductor ETFs' Best Start to a Year Last Long?).  

Some well-known players in the space like Intel INTC, Qualcomm QCOM, NVIDIA NVDA and Applied Materials AMAT are expected to report earnings this week and in the coming days. Let’s delve into the financial picture of the companies that have a higher allocation in the above-mentioned ETFs and the power to move the funds up or down as Q1 earnings unfold. SOXX is largely concentrated on these firms with a combined share of 30.7% followed by 30.6% for SMH.

Our methodology conclusively shows that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP significantly increases the chances of predicting an earnings beat while those with a Zacks Rank #4 or a 5 (Sell-rated) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Inside Our Earnings Prediction

Intel is slated to release earnings figures after market close on Apr 25. It has a Zacks Rank #3 and an Earnings ESP of +0.17%, indicating maximum chances of beating estimates this time around. The stock saw no earnings estimate revision over the past 30 days for the to-be-reported quarter and delivered a positive surprise of 13.56% on average over the last four quarters. It has a VGM Score of B.

Qualcomm has a Zacks Rank of 3 and an Earnings ESP of +0.95%, reasonably suggesting an earnings beat this reporting cycle. The stock witnessed negative earnings estimate revision by a penny over the past 30 days and came up with a positive surprise of 19.02% in the trailing four quarters. It has a VGM Score of F. The company is expected to report earnings numbers after the closing bell on May 1 (see: all the Technology ETFs here).

NVIDIA, expected to report on May 16, is a Zacks #3 Ranked player and has an Earnings ESP of -0.12%. This is indicative of minimal chances for the stock to beat estimates in the upcoming quarterly announcement. The company pulled off positive surprises in the previous four quarters, the average being 8.17%. It saw no earnings estimate revision over the past month for the to-be-reported quarter. The stock has a VGM Score of F.

Applied Materials is a #3 Ranked player and has an Earnings ESP of 0.00%. Its earnings surprise track over the preceding four quarters has been impressive, the average beat being 3.75%. The stock witnessed no earnings estimate revision over the past 30 days for the quarter to be reported. The company has a VGM Score of C and is slated to report on May 16.

Conclusion

As most companies in this space are expected to deliver an earnings surprise, the semiconductor ETFs therefore might continue to see smooth trading in the weeks ahead. Further, SOXX has a Zacks ETF Rank #3 while SMH has a Zacks ETF Rank #2, implying room for an upside (read: U.S. Stocks Near Record High: Top-Ranked ETFs to Buy).

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QUALCOMM Incorporated (QCOM) : Free Stock Analysis Report
 
iShares PHLX Semiconductor ETF (SOXX): ETF Research Reports
 
VanEck Vectors Semiconductor ETF (SMH): ETF Research Reports
 
Intel Corporation (INTC) : Free Stock Analysis Report
 
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
 
Applied Materials, Inc. (AMAT) : Free Stock Analysis Report
 
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