On Monday, U.S. stocks are rising in response to the news of President Trump and Chinese leader Xi Jinping agreeing to hold off tariffs in order to resume trade talks. In addition to the ceasefire, President Trump announced that the U.S. will ease its regulations against American chipmakers selling their products to Chinese telecommunications giant Huawei.
The major indexes initially soared before paring back a bit amid the reached agreement at the G20; the S&P 500 rallied 1%, reaching an all-time high, while the DJIA rose 0.9%, and the NASDAQ Composite went up by 1.7%. Semiconductor stocks who were previously battered by the Huawei restrictions spiked broadly. Skyworks Solutions SWKS saw a more than 6% hike, Micron MU rose over 4%, and Broadcom AVGO jumped over 3%.
With semiconductors reaping the benefits of the temporary harmony between the U.S. and China, let’s see which chipmakers can use this momentum to break out to significant returns.
Advanced Micro Devices
Advanced Micro Devices AMD has had a spectacular year thus far, with shares soaring 69.5% year-to-date. Piper Jaffray’s Chief Market Technician Craig Johnson commented on his enthusiasm for the stock, stating “A close above $33.50 on that stock would be a nice topside breakout and see an objective that would take the stock up into the mid-$40s.” If the chipmaker were to be able to reach $45 that would cement a 50% markup.
AMD is currently a Zacks Rank #3 (Hold) and was able to surpass earnings estimates last quarter for an EPS surprise of 20%. Our Zacks Consensus Estimates are currently projecting 69.23% earnings growth with a 16.96% increase in revenue for the next quarter. Double digit earnings growth is forecasted through the following year as well. The semiconductor is expected to grow substantially through the following years to come and would be a good consideration for investors looking for a sound long term investment.
Diodes
Diodes DIOD is another semiconductor stock that has already seen some solid growth recently. The chipmaker has been able to outpace our consensus estimate the past four quarters for an average EPS surprise of 8.33%. Diodes is up 18.5% in the last month and our consensus estimates are projecting the stock to sustain the growth.
For the current quarter, earnings are projected to grow almost 9% from the prior-year quarter, and current estimates sit at $0.75. Year-over-year estimates are calling for an earnings surge of 17.65% and a sales increase of 2.33% for the next quarter. Diodes is also currently trading at a discount relative to its industry average at just under 13X its forward earnings. The company looks to keep up the recent trend into the second half of the year with the recent boost the industry has experienced.
Qualcomm
Qualcomm QCOM is one of the stocks listed on Goldman Sachs GS list of companies with the most revenue exposure to China. The company has a whopping 67% of its revenue exposed to China, making the company especially vulnerable to continued tariffs and trade restrictions. The recent ceasefire agreement between the two countries sent the stock soaring by as much as 6% in intraday trading.
Qualcomm is currently sitting at a Zacks Rank #3 (Hold) and has also been on a recent uptrend. The semiconductor stock has seen an increase of 35.9% year-to-date stemming from a 33.1% surge over the past 3 months. The company has been able to beat our consensus estimate the past four consecutive quarters, for an average EPS surprise of 17.56%. For the current fiscal year, earnings are projected to grow roughly 3.5% on a year-over-year basis, while EPS could see double-digit growth next year.
If the U.S. and China can come to terms and reach a trade deal, Qualcomm shareholders can rest assured and the stock can be free to continue its recent success.
