Bank of America: Chip stocks are expected to rebound in October, with Nvidia and others potentially performing well
Bank of America believes that the recovery of the semiconductor sector may come earlier than the U.S. election. Wall Street insiders believe that the semiconductor stock market will continue to fluctuate, but analysts at Bank of America believe that this sector may start to recover in October. Historical data shows that the fourth quarter and the first quarter are the two strongest quarters for semiconductor stocks. NVIDIA, Broadcom, and KLA Corporation may perform well. If volatility rises and demand falls, Broadcom, Cadence Design Systems, and Synopsys may perform well. In the event of a recovery, stocks such as Arm, Micron Technology, and ON Semiconductor will perform well
According to CNBC, semiconductor stocks have been fluctuating in recent weeks. While some on Wall Street believe that this volatility may continue until the end of the US election, Bank of America suggests that the sector's recovery may come earlier than the election. Bank of America analyst Vivek Arya wrote in an investor report, "Volatility may persist until Nvidia announces earnings in late August, then heading into September, historically the worst month for the Philadelphia Semiconductor Index, with a 70% chance of decline. The US election and ongoing geopolitical tensions add additional uncertainty. However, if history is any guide, the index may start to recover from October, with the fourth quarter and first quarter being the strongest quarters for semiconductor stocks (average returns of 7-10.5%, outperforming the S&P 500 by over 400 basis points)."
Nvidia is scheduled to announce its quarterly earnings after market close on August 28th. Analysts generally expect the company's second-quarter revenue to be $28.54 billion, with earnings per share of $0.64.
Arya added that the semiconductor industry is only in the fourth quarter of an upturn cycle, with the Philadelphia Semiconductor Index already generating a 28% return. The previous upturn cycle lasted for 10 quarters, bringing the index an average return of 67%.
The bank stated that if the chip industry returns to its baseline rebound scenario, Nvidia, Broadcom (AVGO.US), and KLA Corporation (KLAC.US) may be the top three performing stocks. The bank also mentioned that in a scenario of increasing volatility and declining demand, Broadcom, Cadence Design Systems (CDNS.US), and Synopsys (SNPS.US) may perform well. Arya noted that on the other hand, in a recovery scenario, stocks like Arm (ARM.US), Micron Technology (MU.US), and ON Semiconductor (ON.US) could excel