Bullish momentum of the technology sector in 2017, especially the semiconductor stocks, has left many analysts scratching their head while the gravity-defying speed of these stocks took off leaving many investors behind. Why such a parabolic surge in demand of microchips, processors, integrated circuit board and graphic cards (out of the blue)?
InvestingHaven sees it this way. Fundamentally, in a nutshell, there was a revolution of internet with countless of dotcom companies from 1990s all the way to 2000 when the dotcom bubble finally burst and only a handful of really valuable dotcom companies survived the storm. It took a while for the entire society to digest, integrate, get used to and become expert to it. (which can be clearly seen from the monthly chart of SMH – a semiconductor ETF below forming a semi-sphere bottom)
Concurrently, the application of artificial intelligence on self driving cars – smart car, cloud solution for gigantic storage of data, mobiles apps, ultra-sensitive sensors, iris or face biometric, mining of cryptocurrency were some of the activities taking place and gaining foothold. These microprocessor-intensive activities (just to name a few) usher in a totally different ball game, and the semiconductor companies adapted pretty well to this requirement which is reflected in their profitability. As a result, their stock prices skyrocketed.
Although Nvidia, NXP semiconductor, Qualcomm and others were the outperformers we have found some stocks that could end up catching up.
Before looking into 4 specific semiconductor stocks let’s take a look at the semiconductor sector ETF first.
VanEck Vectors® Semiconductor ETF (SMH®) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® US Listed Semiconductor 25 Index (MVSMHTR), which is intended to track the overall performance of companies involved in semiconductor production and equipment.
Monthly chart of SMH
The price of SMH crashed after its peak of the 2000 dotcom bubble, and since then went through a bumpy route before picking up at the bottom of 2009. From then onwards, recovery was on its way and right after President Trump was elected and promised to make America great again price rallied for a full year without a rest. Now that price took 17 years to creep back to its previous resistance what does the future hold? We do not have a crystal ball but the price structure and pattern did indicate a formidable rounding bottom which is inclined to behave in a bullish way unless price takes a hard fall (which we would accept).
Semiconductor stock #1: Applied Materials, Inc (Ticker- AMAT in Nasdaq)
AMAT is an American corporation that supplies equipment, services and software to enable the manufacture of semiconductor (integrated circuit) chips for electronics, flat panel displays for computers, smartphones and televisions, and solar products. The company also supplies equipment to produce coatings for flexible electronics, packaging and other applications. It sits in the sub-Semiconductor Equipment and Materials industry. As long as semiconductors are in high demand, this will directly translate to equivalent demand on AMAT to supply whatever is necessary to drive the chips.
Monthly chart of AMAT
It is not hard to see the rounding consolidation of AMAT as highlighted in green. If price broke up of this resistance, a target price of ~70 is projected while on the downside, keep a look out on the 41-46 zone if the next earning report is not as good as expected.
Semiconductor stock #2: Xilinx, Inc (Ticker- XLNX in Nasdaq)
Xilinx, Inc. designs and develops programmable devices and associated technologies worldwide. Its programmable devices comprise integrated circuits (ICs) in the form of programmable logic devices (PLDs), such as programmable system on chips, and three dimensional ICs; software design tools to program the PLDs; software development environments and embedded platforms; targeted reference designs; printed circuit boards; and intellectual property (IP). The company also offers development boards; development kits, including hardware, design tools, IP, and reference designs that are designed to streamline and accelerate the development of domain-specific and market-specific applications; and configuration products, such as one-time programmable and in-system programmable storage devices to configure field programmable gate arrays. It fits in the sub-Semiconductor Integrated Circuit industry.
Monthly chart of XLNX
The price context of XLNX can be described as a potential bull flag as bounded by the channel or skew rounding consolidation. Either case this is bullish in general. Watch for the attempt to reach 92-99 zone, previous resistance if it breaks out well while ~67 is the immediate support if price reverse due to earning or other undesirable news.
Semiconductor stock #3: Intel Corporation (Ticker – INTC in Nasdaq)
When it comes to broad-line semiconductor, we will stick to the most famous Intel Corporation. The product from X86, Pentium, Core to Xeon needs no introduction. It is the world’s second largest and second highest valued semiconductor chip makers based on revenue after being overtaken by Samsung. Certainly, being really popular could also bring about temporary downfall at times. It has become a household news regarding its chips vulnerable security issue very recently.
Monthly chart of INTC
The monthly chart is still looking good from a broader perspective. Albeit Intel is going to face a tougher time for at least a quarter or so we still project a target of ~56 by the end of 2018. But first, do know that it has an equal chance of retracing back to ~40 as many analysts are quick to downgrade the outlook for Intel.
Semiconductor stock #4: Micron Technology (Ticker – MU in Nasdaq)
Micron Technology produces many forms of semiconductor devices, including dynamic random-access memory, flash memory, and solid-state drives. Its consumer products are marketed under the brands Crucial and Ballistix. Micron and Intel together created IM Flash Technologies, which produces NAND flash memory. Dynamic Random Access Memory (DRAM) is in strong demand because of its use in cloud, data center, and mobile applications and this will definitely benefit MU even more.
Monthly chart of MU
Our interpretation of the monthly chart suggests a projected price of ~62 for MU in 2018 not ruling out a swift pull back to 31-35 price zone.
We do feel that the stage is set for semiconductor to have another great year in 2018 though the move might not be as ballistic as in 2017.
This article only express our own opinion which should not be construed as a recommendation.
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