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Semiconductor ETFs Riding High on Q4 Earnings

Sweta Killa

The technology sector has been shinning since the start of the year with optimism intensifying after a deluge of robust earnings reports from big players. In particular, the semiconductor corner of the broad sector has been in the spotlight lately with well-known chipmakers like Intel INTC, Texas Instruments TXN and NVIDIA NVDA coming up with strong numbers and robust outlook that are fueling investors’ confidence.

Though Qualcomm QCOM disappointed investors on actual numbers, its outlook is encouraging.

Let’s dig into the individual performances:

Semiconductor Earnings in Focus

Intel, the world’s largest chipmaker, beat our estimates for both revenues and earnings, and provided upbeat outlook. Earnings of 79 cents per share came in four cents higher than the Zacks Consensus Estimate. Revenues of $16.37 billion and were ahead of our estimated $15.76 billion.

Going forward, Intel expects revenues in the range of $14.3–$15.3 billion and earnings per share of 60-70 cents for the first quarter of 2017. The midpoint was above the Zacks Consensus Estimate of $14.54 billion for revenues and 62 cents for earnings per share at the time of earnings release. For 2017, the company expects revenue to be flat compared to 2016 and earnings per share of $2.80, plus or minus 5%. The Zacks Consensus Estimate was pegged at $2.83 (read: Semiconductor ETFs to Buy as Intel Tops Earnings, Guides Up).

Texas Instruments also reported solid Q4 results topping our earnings estimate by 7 cents and revenue estimate by $107 million. For the ongoing first quarter, the company expects revenues in the range of $3.17–$3.43 billion and earnings per share of 78-88 cents. The midpoint of both guidance ranges was higher than the Zacks Consensus Estimate of $3.22 billion for revenues and 75 cents for earnings at the time of earnings release.

NVIDIA, a videogame-gear specialist, came up with earnings of 99 cents per share for the fiscal 2017 fourth quarter, easily trumping the Zacks Consensus Estimate by 16 cents. Revenues of $2.17 billion is also well ahead of our estimate of $2.08 billion. For the first quarter of fiscal 2018, NVIDIA expects revenues of approximately $1.90 billion (+/-2%). The Zacks Consensus Estimate at the time of earnings release was pegged at $1.868 billion.

At Qualcomm, earnings per share of $1.06 matched our estimate while revenues of $6 billion fell short of our estimate of $6.11 billion. The company guided revenues of $5.5–$6.3 billion and earnings per share of $1.15-$1.25 for the second quarter of fiscal 2017. The midpoint of both the guidance are higher than the current Zacks Consensus Estimate $5.88 billion for revenues and $1.05 for earnings.

ETFs in Focus

Impressive results of these chipmakers have pushed semiconductor ETFs higher over the past one month. Investors seeking to ride out the surging space in a diversified way could consider the following ETFs (see: all the Technology ETFs here).

iShares PHLX Semiconductor ETF SOXX

This ETF follows the PHLX SOX Semiconductor Sector Index and offers exposure to 30 firms. The in-focus four firms are among the top five holdings accounting for a combined 30.6% share in the basket. The fund has amassed $789.8 million in its asset base and trades in solid average volume of around 514,000 shares a day. The product charges 47 bps in fees a year from investors and gained 4.3% over the past one-month. It has a Zacks ETF Rank of 2 or Buy rating with a High risk outlook.

VanEck Vectors Semiconductor ETF SMH

This fund provides exposure to 26 securities by tracking the MVIS US Listed Semiconductor 25 Index. Of these, Intel takes the top spot at 13.2% while QCOM, NVDA and TXN collectively make up for 16.8% share. The product has managed assets worth $431.5 million and charges 36 bps in annual fees and expenses. It is heavily traded with a volume of around 2.7 million shares per day and added 2.9% in the same time frame. The fund has a Zacks ETF Rank of 3 or Hold rating with a High risk outlook.

SPDR S&P Semiconductor ETF XSD

This fund tracks the S&P Semiconductor Select Industry Index, holding 40 stocks in its portfolio. It is widely spread across a number of securities as none of the in-focus firms make up for more than 3.4% share each. The fund is less popular with AUM of $288.8 million and an average daily volume of about 110,000 shares. It charges 35 bps in fees per year and added 2.6% over the past one-month. The product has a Zacks ETF Rank of 2 with a High risk outlook.

PowerShares Dynamic Semiconductors Fund PSI

This fund tracks the Dynamic Semiconductor Intellidex Index, holding 30 securities in its basket. The in-focus four firms collectively make up for 18.3% of total assets. The product has AUM of $130 million and sees a lower average daily volume of 50,000 shares. Expense ratio comes in at 0.63%. PSI surged 5.6% in the same time frame and has a Zacks ETF Rank of 2 with a High risk outlook (read: Technology ETFs Hitting All-Time High).

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