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Will Intel's Weak Guidance Disrupt Semiconductor ETFs' Rally?

Sweta Killa

The semiconductor space saw one of the best days in a decade in yesterday’s trading session, with PHLX Semiconductor Index gaining 5.7% -- its seventh-highest rise in the same time frame.

The impressive rally was driven by four stocks — Xilinix XLNX, Teradyne TER, Lam Research LRCX and Texas Instruments TXN — that has spread huge optimism in the space. Xilinx, which makes programmable chips for data centers, climbed 18.4% while Lam Research and Teradyne, which make equipment that manufactures semiconductors, gained 15.7% and 12.9%, respectively, following earnings and revenue beat. Texas Instruments was up 6.9% after it delivered an earnings surprise (read: Chip Stocks See Big Two-Day Rally After 2015: ETFs in Focus).

However, disappointing outlook from Intel INTC, when it reported quarterly results after the market close, could pause the rally in the space. This is especially true as shares of INTC dropped as much as 8% in aftermarket hours on elevated volume.

Intel Earnings in Focus

Earnings of $1.28 per share came in six cents above the Zacks Consensus Estimate and improved from the year-ago earnings of $1.08. Revenues rose 9% year over year to $18.66 billion but were well below the estimated $19.01 billion. Revenue miss was attributable to a slowdown in China and sluggish demand for its data center and modem chips.

The world’s largest chipmaker expects revenues of $16 billion and earnings per share of 87 cents for the first quarter. It is much below the Zacks Consensus Estimate of $17.27 billion for revenues and $1.01 for earnings per share. For 2019, the company guided revenues of $71.5 billion and earnings per share of $4.60. The Zacks Consensus Estimate is currently pegged at $72.98 billion for revenues and $4.54 for earnings per share. The weak outlook sparks fears of a chip slowdown.

Intel has a Zacks Rank #3 (Hold) and a VGM Score of A. However, the stock belongs to the bottom-ranked industry (bottom 34%).

ETFs in Focus

Given Intel’s sluggish guidance, semiconductor ETFs that have gained in a broad sector rally could decline. These have a large allocation to the biggest semiconductor company (see: all the Technology ETFs here).

VanEck Vectors Semiconductor ETF SMH

This fund provides exposure to 25 securities by tracking the MVIS US Listed Semiconductor 25 Index. Intel occupies the top position with 13.7% of the assets. The product has managed assets worth $900.1 million and charges 35 bps in annual fees and expenses. It is heavily traded with volume of around 7.1 million shares per day and carries a Zacks ETF Rank #3 (Hold) with a High risk outlook. SMH was up 5.8% in yesterday’s session.

iShares PHLX Semiconductor ETF SOXX

This ETF follows the PHLX SOX Semiconductor Sector Index and offers exposure to 30 U.S. firms, with INTC taking the second spot with 8.3% allocation. The fund has amassed $998.2 million in its asset base and trades in volume of about 934,000 shares a day. The product charges a fee of 47 bps a year from investors and has a Zacks ETF Rank #3, with a High risk outlook. It gained 5.8% in yesterday’s session (read: U.S., China to Reach a Trade Deal? ETF Areas to Gain).

First Trust Nasdaq Semiconductor ETF FTXL

This fund offers exposure to the most-liquid U.S. semiconductor securities based on volatility, value and growth by tracking the Nasdaq US Smart Semiconductor Index. Holding 28 stocks in its basket, Intel is the top firm accounting for 8.9% share. FTXL has accumulated $18.7 million in AUM and trades in average daily volume of 13,000 shares. It charges 0.60% in expense ratio and has a Zacks ETF Rank #3. The ETF surged 6.8% on the day.

Invesco Dynamic Semiconductors ETF PSI

This fund tracks the Dynamic Semiconductor Intellidex Index, holding 30 securities in the basket. Intel occupies the second position and makes up for 5.3% share in the basket. PSI has AUM of $157.3 million and sees average daily volume of about 52,000 shares. It charges 61 bps in annual fees and carries a Zacks ETF Rank #3 with a High risk outlook. The fund gained 5.3% in yesterday session.

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