5 Reasons to Stay Bullish on Semiconductor Stocks

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Semiconductors: The Leading Industry

Over the past 20 years, semiconductor companies have played the most integral role in the U.S. economy. Semiconductors power almost all modern technology, from smartphones to high-performance computers. The technology and constant innovation in this highly competitive industry have been responsible for breakthroughs in industries like electronics, automobiles, and healthcare.

Chip demand has increased exponentially over the past 15 years thanks to rising demand fueled by the Internet of Things (IoT), artificial intelligence (AI), and the rise of 5G networks. The Vaneck Semiconductor ETF (SMH), which tracks a basket of publicly traded semis, is up a mindboggling 2,320.7% over the past 15 years.

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5 Reasons to Invest in Semiconductor Stocks

With such a robust performance, many investors feel they have already missed the move. Below are five reasons more meat is left on the bone for semiconductor stocks:

1. Data Center & AI Demand Remain Strong

SEMI (@SEMIconex) states,“The global semiconductor industry saw strong growth in Q3 2024 – marking the first positive QoQ increases across all key indicators in two years.”

2. Forward Estimates for Nvidia

Wall Street analysts believe the rapid earnings growth will continue in Nvidia (NVDA), the undisputed semiconductor king. Zacks Consensus Estimates suggest that NVDA’s quarterly EPS will grow 85% year-over-year and will achieve hockey-stick like growth in 2025 and 2026

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3. November Seasonality

Though semi stocks are slightly lower month-to-date, November is typically a very strong month for the group. The SMH ETF has been green in 10 out of the past 12 Novembers, with the only losses being minor (-0.29 in 2013 and -2.02% in 2017).

4. The Wall of Worry is Intact

Wall Street is rarely obvious, and stocks tend to climb the proverbial “Wall of Worry.” Super Micro Computer (SMCI), an Nvidia supplier, injected pessimism into the group after it delayed filing its financials. However, Tuesday, SMCI shares spiked after the company found a new auditor and announced it plans to file updated financials and avoid a Nasdaq delisting. Regardless of what happens with the SMCI saga, Dell (DELL) and other competitors would likely be able to fill the SMCI void.

5. Technicals

Though semis have digested gains recently, several leaders like Arm Holdings (ARM) are retreating to crucial support levels. ARM shares are reverting to their 200-day moving average, a level the stock found buyers at in the first two visits.

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Meanwhile, though the AI boom has been the primary industry driver, emerging market segments like autonomous driving promise to keep the growth steady.

Bottom Line

Semis are an integral part of the U.S. economy. Though chip stocks have stalled recently, forward growth remains strong, and several indicators suggest that higher prices are on the horizon.

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