Chip stocks are trending today and moving higher following big gains on Thursday.
Shares of major semiconductor and microchip companies such as Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD) are up more than 1% today after rising more than 10% in the previous trading session.
The stocks rallied on news that inflation in the U.S. has begun to moderate. Today’s move higher appears to be fueled by a slew of positive news related to new products and facilities from the chipmakers.
The one exception to the current rally is Intel (NASDAQ:INTC), whose shares are down 2% following a downgrade of the stock by JPMorgan.
What Happened With Chip Stocks
Shares of semiconductor companies soared in the previous trading session after the U.S. inflation rate for October came in at a lower-than-expected annualized rate of 7.7%. Economists had expected an inflation reading of 7.9%.
Investors pushed up technology stocks sharply on the inflation report, betting that consumer price increases have now peaked and that the U.S. Federal Reserve will scale back its interest-rate increases going forward. The tech-heavy Nasdaq index jumped more than 7%, its biggest one-day increase in more than two years.
The rally in semiconductor stocks is continuing as companies such as Nvidia and AMD announce improved sales and introduce new products. In addition to NVDA and AMD stocks, shares of chip companies Taiwan Semiconductor (NYSE:TSM) and Marvell Technology (NASDAQ:MRVL) are also rising today following big gains on Thursday.
The lone exception is INTC stock, which suffered a double downgrade by JPMorgan to an “underweight” rating. JPMorgan said it downgraded the stock because Intel is losing market share to competitors.
Why It Matters
Among technology stocks, semiconductor and chipmakers have been the most brutalized this year. Slowing sales of personal computers and video game consoles coming out of the pandemic and U.S. export restrictions on chip sales to China have conspired to shake confidence in the sector.
Even with yesterday’s big rally, NVDA stock remains down nearly 50% this year at $157.50 a share. AMD stock is down 54% on the year, and MRVL stock is down 52% year to date. The strengthening rally in these stocks suggests that they may have bottomed and will continue rising moving forward.
What’s Next
While some analysts are calling a bottom in the entire stock market and predicting that equities will continue to rally into year end, there is no guarantee that a bottom has been reached, including for chip stocks. Famed investor Carl Ichan said late Thursday that he believes we remain in a bear market and that stocks will continue trending lower until the Fed lets up on raising interest rates. Given the current uncertainty, investors should remain cautious with their capital allocations.
On the date of publication, Joel Baglole held a long position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
