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Semiconductor ETFs to Roar Higher as Q2 Earnings Unfold

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Semiconductor stocks have been on a stellar ride driven by improving overseas demand and innovative technologies. New areas such as autonomous cars, cloud computing, gaming, wearables, VR headsets, drones, virtual reality devices, Internet of Things (IoT) and artificial intelligence are fueling growth in the sector, offsetting struggling traditional businesses like PCs and smartphones.

In particular, iShares PHLX Semiconductor ETF (NASDAQ:SOXX), VanEck Vectors Semiconductor ETF (NYSEARCA:SMH), and PowerShares Dynamic Semiconductors Fund (NYSEARCA:PSI) has climbed 23.9%, 22.8% and 28.4%, respectively, year to date beating the broad technology fund (XLK) by a wide margin. XLK has gained 19.9% in the same time frame (read: Tech ETFs on Fire as Q2 Earnings Season Heats Up).

This trend is likely to continue heading into Q2 earnings given that most of the chipmakers are poised to surprise again this quarter. Let’s delve into the earnings picture of major chipmakers like Intel Corporation (NASDAQ:INTC), Texas Instruments Incorporated (NASDAQ:TXN), NVIDIA Corporation (NASDAQ:NVDA), Applied Materials, Inc. (NASDAQ:AMAT) and Lam Research Corporation (NASDAQ:LRCX) that have a higher allocation to these ETFs and have the power to move the funds up or down as Q2 earnings unfold. SOXX has the largest concentration in the five firms with a combined share of 32.5%, followed by 31.2% for SMH and 20.9% for PSI.

Let’s dig deeper into the earnings picture of these companies that would drive the performance of the above-mentioned funds in the coming days:

According to the our methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP increases our chances of predicting an earnings beat, while a Zacks Rank #4 or 5 (Sell rated) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

What’s in Store?

The world’s largest chipmaker, Intel, is slated to release earnings after market close on July 27. It has a Zacks Rank #4 (Sell) and an Earnings ESP of -1.47%. However, the stock has seen a positive earnings estimate revision of 4 cents over the past 90 days for the to-be-reported quarter and delivered a positive earnings surprise of 6.95% on average over the last four quarters. Intel is a triple play stock with a Value, Growth and Momentum Style Score of A each.

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