Semiconductors are ripping as evidence keeps suggesting a rebound is coming soon.
The Philadelphia Semiconductor Index ($SOX) has surged almost 9 percent since the beginning of last week. That’s more than twice the gain of the broader S&P 500 over the same period.
News event after news event have spurred the move:
- Monday, March 11: Nvidia (NVDA) agreed to purchase Mellanox (MLNX) to grow in the data-center space. Yes, there’s life after the iPhone.
- Friday, March 15: Broadcom (AVGO) CEO Hock Tan predicted the fiscal second quarter (March-May) will be the “bottom.” After that, he sees “very meaningful growth.”
- Tuesday, March 19: Advanced Micro Devices (AMD) wins a contract to provide chips for Alphabet’s (GOOGL) new Stadia streaming video-game service.
- Wednesday, March 20: Micron Technology (MU) beat estimates and indicated memory-chip demand will rebound in the current quarter.
These headlines mark a change from the narrative a few months ago, when investors worried about a smart-phone glut slowing orders. Apple’s (AAPL) fourth-quarter meltdown resulted from the weakness.
But the chip industry has responded with capacity cuts — almost like OPEC taking oil off the market. That’s helped support prices and kept the boom-and-bust cycle from getting out of control.
In conclusion, chips are a volatile and economically sensitive industry. And at this point, there’s a growing consensus that the worst of the slowdown is now over.