The VanEck Vectors Semiconductor ETF (NASDAQ: SMH) is higher by 26.59% over the past 90 days and if some analysts’ predictions prove accurate, that could be a starting point, not a cap to upside for chip stocks and the venerable SMH.
SMH, one of the bellwether semiconductor ETFs, seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® US Listed Semiconductor 25 Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index. The index includes common stocks and depositary receipts of U.S. exchange-listed companies in the semiconductor industry. Such companies may include medium-capitalization companies and foreign companies that are listed on a U.S. exchange.
“Bank of America is bullish on chip stocks in the second half of 2020,” reports Maggie Fitzgerald for CNBC. “The Wall Street firm says a group of semiconductor names have secular tailwinds, including artificial intelligence, 5G, cloud, and gaming. Plus, the chip stocks have strong balance sheets and solid free cash flow generation. Bank of America expects the group — which already has strong year-to-date performances — to continue its run-up.”
Going With Growth
As an industry, semiconductor makers are highly tied to global growth, estimates for which are being ratcheted lower due to the coronavirus. However, many of those trimmed estimates pertain to the first half of this year and if there is pent up demand seeping into the third and fourth quarters. SMH’s status as a growth play could prove rewarding in the second half of 2020.
“Until we see firm signs of economic reopening/vaccines and/or higher treasury yields, growth could continue to outperform,” Bank of America research analyst Vivek Arya wrote in a client note.
After a March dive, the semiconductor sector is now soaring, which could fuel investors’ appetite for chipmakers and their associated ETFs. Technology as a sector itself is muting the effects of the coronavirus pandemic—semiconductors included.
SMH is powered by the likes of Nvidia and Skyworks Solutions, two of the high-fly acts in the chip space this year.
“Nvidia is one of Bank of America’s top picks in the chip space. The firm has the highest price target on Wall Street at $460 per share. That implies a more than 10% increase from Nvidia’s current share price of $408.64,” according to CNBC. “Skyworks Solutions is unique in the chip space due to its unlevered balance sheet and free cash flow generation, Bank of America said. The firm also expects Skyworks to get a boost from the upcoming 5G cycle.”
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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.