Semiconductor ETFs Leading Tech Sector On Q1 Earnings

Semiconductors have been shining and are leading the broader technology sector thanks to improving overseas demand and innovative technologies. In particular, a spate of strong earnings reports from well-known players like NVIDIA (NVDA – Free Report) , Texas Instruments (TXN – Free Report) , Lam Research Corporation (LRCX – Free Report) , Intel (INTC – Free Report) and Qualcomm (QCOM – Free Report) instilled confidence in the sector.

Let’s dig into the individual performances:

Semiconductor Earnings in Focus

The graphics chipmaker NVIDIA came up with earnings of 82 cents per share for first-quarter fiscal 2018, trumping the Zacks Consensus Estimate by 16 cents. Revenues of $1.94 billion are also well ahead of our estimate of $1.91 billion. For fiscal second quarter, NVIDIA expects revenues of approximately $1.95 billion (+/-2%). The Zacks Consensus Estimate at the time of earnings release was pegged at $1.893 billion.

Texas Instruments reported solid Q1 results topping our earnings estimate by six cents and revenue estimate by $99 million. For the ongoing second quarter, the company expects revenues in the range of $3.40–$3.70 billion and earnings per share of $0.89–$1.01. The midpoint of both guidance ranges was higher than the Zacks Consensus Estimate of $3.49 billion for revenues and 91 cents for earnings at the time of earnings release.

Lam Research also topped on both revenue and earnings for third quarter fiscal 2017. Earnings per share of $2.80 strongly surpassed the Zacks Consensus Estimate by 26 cents while revenues of $2.15 billion edged past our estimated $2.13 billion. For fiscal fourth quarter, the company expects revenues in the range of $2.2–$2.4 billion and earnings per share of $2.88–$3.13.

Intel, the world’s largest chipmaker, beat our earnings estimates by a penny while missed our revenue estimate by $12 million. Going forward, Intel expects revenues in the range of $13.9–$14.9 billion and earnings per share of 63–73 cents for the second quarter of 2017. The midpoint was above the Zacks Consensus Estimate of $14.30 billion for revenues and 64 cents for earnings per share at the time of the earnings release. For 2017, the company expects revenues of almost $60 billion compared with the Zacks Consensus Estimate of $59.82 billion at the time of earnings release. Additionally, the earnings per share guidance has been revised upward to $2.80–$2.90 from $2.75–$2.85.

At Qualcomm, earnings per share of $1.20 for the second quarter of fiscal 2017 (ended Mar 31, 2017) surpassed our estimate of $1.05 while revenues of $5.0 billion fell short of our estimate of $5.88 billion. The company guided revenues of $5.3–$6.1 billion and earnings per share of $0.90–$1.15 for the third quarter of fiscal 2017. The midpoint of both the guidance ranges is much above the current Zacks Consensus Estimate $5.27 billion for revenues and 68 cents 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.

iShares PHLX Semiconductor ETF (SOXX – Free Report)

This ETF follows the PHLX SOX Semiconductor Sector Index and offers exposure to 30 firms. The in-focus five firms are among the top six holdings accounting for a combined 36.1% share in the basket. The fund has amassed $998.1 million in its asset base and trades in solid average volume of around 481,000 shares a day. It charges 48 bps in fees a year from investors and has surged 10.6% over the past one month. It has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a High risk outlook.

VanEck Vectors Semiconductor ETF (SMH – Free Report)

This fund provides exposure to 26 securities by tracking the MVIS US Listed Semiconductor 25 Index. Of these, the in-focus five firms collectively make up for 31.9% share. The product has managed assets worth $751 million and charges 36 bps in annual fees and expenses. It is heavily traded with a volume of around 2.3 million shares per day and has gained 9.9% in the same time frame. The fund has a Zacks ETF Rank of 1 with a High risk outlook.

SPDR S&P Semiconductor ETF (XSD – Free Report)

This fund tracks the S&P Semiconductor Select Industry Index, holding 37 stocks in its portfolio. It is widely spread across a number of securities as each of the in-focus firms except LRCX make up for at least 3% share each. The fund is less popular with AUM of $288.2 million and an average daily volume of about 105,000 shares. It charges 35 bps in fees per year and has added 8.5% over the past one month. The product has a Zacks ETF Rank of 1 with a High risk outlook.

PowerShares Dynamic Semiconductors Fund (PSI – Free Report)

This fund tracks the Dynamic Semiconductor Intellidex Index, holding 30 securities in its basket. The in-focus firms, excluding QCOM, collectively make up for 20.8% of total assets. The product has AUM of $255.4 million and sees a moderate average daily volume of 65,000 shares. Expense ratio comes in at 0.63%. PSI has surged 11.9% in the same time frame and has a Zacks ETF Rank of 1 with a High risk outlook.

First Trust Nasdaq Semiconductor ETF (FTXL – Free Report)

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 30 stocks in its basket, LRCX, TXN and INTC occupy top three positions in the basket with a combined 24.5% share while the other two make up for nearly 2% share each. FTXL debuted in the space seven months ago and has already accumulated $21.7 million in AUM. Average trading volume is light at around 9,000 shares and expense ratio comes in at 0.60%. FTXL is up 8.2% over the past one month.