AI Leaders Remain Bullish on the Future
I recently discussed the overwhelmingly bullish sentiment shared among top management teams in the semiconductor space, particularly regarding AI-related growth. Over the last handful of weeks, AI-centric growth stocks like Marvell (MRVL), Broadcom (AVGO), and Astera Labs (ALAB) have seen their shares explode higher after blowing away Wall Street expectations. You can read the full commentary here.
However, as I mentioned in the piece, while industry-wide positive rhetoric can be a bullish omen for investors, these management teams must be taken with a grain of salt as insiders have “skin in the game” and benefit from higher stock prices. With that in mind, I will take the time to conduct a deeper analysis today to provide evidence for these comments and build up conviction for investors in the semiconductor trade into 2025. Below are five reasons to own semis, including:
1. Forward Estimates are Robust for Chip Stocks: An invaluable metric for investors to gauge is Zacks Consensus Estimates, which track a composite of Wall Street analyst estimates into the future. Marvell, which earns a best possible Zacks Rank #1 (Strong Buy), is expected to grow earnings by a juicy triple-digit clip next quarter.
Image Source: Zacks Investment Research
2. Semiconductor Margins are High: Compared to the general market, semis enjoy some of the highest margins on Wall Street, and in most cases, they are growing or remain steady. For example, Nvidia’s (NVDA) gross profit margins have grown from the mid-50s in 2023 to north of 75 currently.
Image Source: Zacks Investment Research
3. Smart Money Sponsorship: According to the latest filings with the SEC, legendary billionaire investor David Tepper holds more than two million shares of Advanced Micro Devices (AMD). Meanwhile, Tepper isn’t the only deep-pocketed legend interested in chip stocks - fellow billionaire reportedly made a timely purchase of AVGO in his last filing.
4. Historical Seasonality: Historically, the turn of the new year is the optimal time to own the Semiconductor ETF (SMH). In addition, option traders have been tagging the semiconductor proxy with bullish call option flow.
Image Source: Equity Clock
5. Big Base Breakouts: Price is the ultimate arbiter of success and the most straightforward metric for investors. That’s a good sign for semiconductors. Several stocks in the industry like AVGO, ALAB, and MRVL, have triggered fundamentally driven, multi-month breakouts. Such moves typically mark the beginning of a new trend, not the end.
Image Source: TradingView
Conclusion
Semiconductor stocks are in the sweet spot between robust forward expectations, clean balance sheets, and fresh multi-month technical breakouts. The odds strongly favor higher prices in this leading industry.
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Advanced Micro Devices, Inc. (AMD): Free Stock Analysis Report
NVIDIA Corporation (NVDA): Free Stock Analysis Report
Marvell Technology, Inc. (MRVL): Free Stock Analysis Report
Broadcom Inc. (AVGO): Free Stock Analysis Report
VanEck Semiconductor ETF (SMH): ETF Research Reports
Astera Labs, Inc. (ALAB): Free Stock Analysis Report