“After a strong 2023, semiconductor stocks have continued to markedly outperform this year, up 30%-plus since the beginning of January, amid substantial multiple expansion as AI names carry the day and investors play the bottoming theme around some parts of the cycle,” said Bernstein analysts, led by Stacy Rasgon, in a Monday note.
Not all companies in the sector have experienced expanding earnings expectations. Names associated with AI, compute and mobile have seen the highest expansions.
For example, Nvidia’s (NASDAQ:NVDA) forward earnings estimate has increased more than 200% year over year; Intel (NASDAQ:INTC) by about 75%; and Advanced Micro Devices (NASDAQ:AMD), Qorvo (QRVO), Qualcomm (QCOM) and Broadcom (NASDAQ:AVGO) all up about 25%.
Meanwhile, names such as Texas Instruments (TXN), Skyworks Solutions (SWKS) and Analog Devices (ADI), have seen earnings estimates decline about 25% year over year, according to data by Bernstein and Bloomberg.
“AI names are, of course, contributing to record sector valuations,” Rasgon wrote. “But correcting current SOX valuations to remove AI-focused companies (NVDA, MRVL, AMD, INTC, and AVGO) still has the sector trading over 30x forward EPS.”
Bernstein rates Broadcom, Nvidia, Qualcomm and Applied Materials (AMAT) at Outperform. Conversely, Texas Instruments is rated Underperform.
Semi stocks were trending lower during morning trading Monday. AMD was down about 4%; Nvidia, ADI and Skyworks Solutions slipped about 1.5%; while Qualcomm, Applied Materials and Texas Instruments fell less than 1%.
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