After sliding on Tuesday, shares of semiconductor stocks Advanced Micro Devices (NASDAQ: AMD), Broadcom (NASDAQ: AVGO), and Taiwan Semiconductor Manufacturing Company (NYSE: TSM) are all inching higher again on Wednesday morning, rising 2.8%, 2.8%, and 5.1%, respectively, through 11:05 a.m. ET.
Two key elements look like driving today’s outperformance: generalized, global trends in semiconductor demand and… the U.S. government.
Semiconductor demand is growing
First things first. On Monday, the Semiconductor Industry Association (SIA) trade group reported that global semiconductor sales in January 2024 declined barely as in comparison with December 2023 (down 2.1%), but increased dramatically as in comparison with the year-ago period. January 2024 sales totaled $47.6 billion, up 15.2% yr over yr from January 2023 — an important year-over-year increase in monthly sales seen since May 2022, the association noted.
The SIA described January’s results as a sturdy begin to the yr, and predicted that as 2024 progresses, semiconductor sales worldwide will proceed to grow double-digits over 2023 numbers. In the interim on the very least, it seems a complete lot of this growth is being concentrated amongst only a handful of firms — Nvidia and its contract manufacturer TSMC being notable winners — such that it isn’t 100% certain that each individual semiconductor stock could also be expected to grow this yr.
However it surely’s definitely higher news than a report that semiconductor sales are slowing would have been.
America first (or on the very least second)
On a more granular level, the SIA report noted that semiconductor sales growth was fastest in China (sales up 26.6% yr over yr) and second-fastest inside the U.S. (sales up 20.3%) — which leads us to our second point today, influencing the prices of AMD, Broadcom, and TSMC stock prices: the U.S. Chips Act.
As Reuters reports today, “near $30 billion” price of U.S. government subsidies awarded to semiconductor manufacturers under the Chips Act will “start flowing in the next few weeks.” Again, it isn’t 100% certain presently who will cash in on this largesse. Reuters reports that Intel, Samsung, and TSMC are all “likely” to receive subsidies under the Chips Act, while it’s less clear how much Broadcom and AMD might profit — and for now, the Commerce Department is remaining mum on who’s getting how much of the money.
Until everyone knows more, as a result of this fact, investors are probably best advised to keep up their give attention to valuation. And in that regard, at 26 times earnings today, TSMC looks identical to the safest of the three stocks to take a position in. Broadcom shares cost on the very least 50% more at a valuation of 41 times trailing earnings, and AMD looks much costlier at a P/E ratio of 387 (!).
Admittedly, TSMC also has the underside projected earnings growth rate of the three stocks — 11%, versus 14% for Broadcom and 52% (also “!”) for AMD. On the plus side, though, that more conservative growth rate also implies that TSMC has the underside bar to clear — and one of the best probability of outperforming expectations and delivering a positive earnings surprise for investors.
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Wealthy Smith has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Idiot recommends Broadcom and Intel and recommends the subsequent options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short May 2024 $47 calls on Intel. The Motley Idiot has a disclosure policy.
Why AMD, TSMC, and Broadcom Stocks Are All Up Today was originally published by The Motley Idiot