Leveraged Bulls Aren't Hopping Off the Semiconductors Train

The global chip shortage is being further supplemented by semiconductor companies’ strong first quarter results. Q1 profits like those from NPX Semiconductors are allowing traders to keep riding the bullish the Direxion Daily Semiconductor Bull 3X ETF (SOXL).

“NXP Semiconductors swung to a stronger-than-expected first-quarter profit from a year-earlier loss on 27% higher revenue,” an article in The Street noted. “The Eindhoven, Netherlands, chipmaker reported that it earned $1.25 a share compared with a loss of 8 cents a share in the year-earlier quarter. Revenue reached $2.57 billion from $2.02 billion.”

Both earnings and revenue ousted analysts’ estimates. NPX Semiconductors is one of SOXL’s top 10 holdings, comprising about 4% of the fund.

“A survey of analysts by FactSet produced consensus estimates of IFRS earnings of $1.18 a share on revenue of $2.56 billion,” the article added. “At last check, NXP shares were trading up 1.5% to $208.10. They closed regular Monday trading at $205.02, up 1.7%. The stock touched a 52-week high of $216.43 on April 5. Gross-profit margin widened to 52.8% for the quarter from 49.3% a year earlier.”

“We continue to be encouraged by the long-term demand trends across all our end markets, which underpin our continued confidence of very robust growth throughout 2021,” President and Chief Executive Kurt Sievers said in a statement.

SOXL, which is up over 400% the past year, seeks daily investment results equal to 300% of the daily performance of the PHLX Semiconductor Sector Index. The fund, under normal circumstances, invests at least 80% of its net assets in financial instruments, such as swap agreements, and securities of the index, ETFs that track the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.

SOXL Chart

Automakers Are Feeling the Chip Pinch

With so many vehicles nowadays powered by both motors and motherboards, the global chip shortage is putting the pinch on automakers, with many already cutting production output.

“Automakers from GM to Ford Motor and Toyota have cut production this year due to the global semiconductor chip shortage,” a Reuters article reported. “While those automakers have been pinched, dealers are experiencing the best of times. Not only can they charge full price for the hottest-selling trucks and SUVs, but many also have reduced promotional spending and other costs required by full vehicle lots.”

“The good times won’t likely end soon as many industry officials see the chip shortage lasting into 2022,” the report added. “Many dealers report thin vehicle supplies, in some cases as low as 15 days worth.”

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