The Vaneck Vectors Semiconductor Index (SMH) rallied on Friday, closing up 2.45%, on a move from Invidia, which had a robust earnings report. Applied Materials however, muted the sector somewhat with its weak outlook, dropping the company’s stock almost 4% in trading Friday. Applied Materials warned that a recovery for the company is unlikely to transpire prior to next year.
Chip stocks are on pace for the third straight week of losses amidst economic woes out of China and ongoing trade war headlines. Stocks in the sector that are dragging it down this month include Skyworks Solutions, which is down 10%, Applied Materials, which is off 9%, Intel, which has fallen 8%, Xilinx, down 6%, and Invidia, which despite earnings is still down 6% in August.
The protracted trade war has had a pronounced effect on the semis as a whole, given that China has powerhouse companies like telecom giant Huawei, which has a pronounced effect on the semiconductor space as well.
“Tech and semis are a huge part of what China does and what the U.S. consumes,” Michael Antonelli, market strategist at Robert W. Baird, told Reuters.
“The Huawei incident has indeed stimulated the development of China’s domestic chip industry,” Gu Wenjun, analyst at China-based semiconductor research firm ICWise, told CNBC by email. He wrote in Mandarin and his comments were translated by CNBC.
China & Semiconductors
China underscored semiconductors as a key area of the Made in China 2025 plan, a government initiative that strives to increase the production of higher-value products. China’s goal is to produce 40% of the semiconductors it uses by 2020 and 70% by 2025. That initiative is supported by tens of billions of dollars of investment from Beijing into the country’s chip industry.
Aside from the recent slump, possibilities of a tariff truce gave a boost to the semiconductor sector overall earlier in the year, and the Vaneck Vectors Semiconductor Index is still managing a 27% gain for the year despite a dismal August 2019 performance.
Still to come for the semis are earnings reports from major tech companies, which rely on chip companies to get a better sense for whether demand will elevate, such as HP Inc (HPQ), VMWare (VMW), and Pure Storage (PSTG).
For more market trends, visit ETF Trends.
