A variety of industries contributed to the technology sector’s 2022 woes, but one of the main culprits was chip stocks.
Slack demand and supply chain woes were among the reasons that the widely followed ICE Semiconductor Index dipped 35% in 2022, but some analysts believe some marquee chip names offer rebound potential this year. If accurate, that forecast could benefit exchange traded funds such as the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM).
QQQ and QQQM aren’t dedicated semiconductor ETFs, but both follow the Nasdaq 100 Index (NDX), which is home to a slew of chip stocks. At least 15 semiconductor equities reside in that benchmark, making QQQ and QQQM ideal avenues through which investors can participate in a potential chip stock rebound without the commitment of a dedicated chip ETF.
There are reasons to consider the Invesco ETFs. In a Wednesday note to clients, Mizuho analyst Vijay Rakesh waxed bullish on Advanced Micro Devices (NASDAQ:AMD), Broadcomm (NASDAQ:AVGO), Nvidia (NASDAQ:NVDA), and Qualcomm (NASDAQ:QCOM) — all of which are QQQ and QQQM components.
“For AMD, the analyst is optimistic about its data center server chip business and predicts it can outperform current expectations,” reported Tae Kim for Barron’s. “He is bullish on Nvidia’s market leadership in making chips that are used for artificial intelligence applications and expects its latest gaming graphics cards will sell well.”
Nvidia is the third-largest tech holding in QQQ and QQQM, commanding 4.02% of the ETFs’ rosters. Rival AMD accounts for 1.02% of those ETFs’ portfolios. The former could also get a lift from rebounding bitcoin prices due to its exposure to the crypto mining industry.
“Regarding Qualcomm, Rakesh sees the chip maker as a beneficiary from the eventual economic rebound in China,” according to Barron’s. “Finally, Broadcom shares are attractive on the back of its high profit margins across its semiconductor and infrastructure software portfolio, says the analyst.”
Those two chip stocks combine for 3.25% of QQQ and QQQM. Beyond the factors highlighted by Mizhuho’s Rakesh, both Broadcomm and Qualcomm are, by some estimates, undervalued today while offering investors the benefit of sturdy balance sheets and enviable track records of dividend growth.
It remains to be seen if the scenario is durable, but there’s overt strength in chip stocks to start 2023 as the aforementioned ICE Semiconductor Index is higher by an impressive 15.79% since the start of the year.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.