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This week, the tech sector demonstrated exceptional strength, with semiconductors taking center stage. According to Investor’s Business Daily (IBD) criteria, several factors contributed to the robust performance and optimism surrounding semiconductors. Nvidia, ARM holdings, Taiwan Semiconductors and others continue to report outstanding earnings growth, relative price strength, market trends, and innovative advancements.

One of the primary indicators of a sector’s strength in IBD’s analysis is earnings growth. Semiconductor companies have reported impressive quarterly earnings, exceeding analysts’ expectations. Major players like Nvidia (NVDA), Broadcom (AVGO), Taiwan Semiconductor (TSM), and ARM Holdings (ARM) have shown significant profit increases due to rising demand for their products in artificial intelligence (AI), gaming, and data centers. 

NVDA Semiconductor Daily Chart 06182024

Nvidia, for instance, reported a remarkable 80% year-over-year increase in revenue, driven largely by its dominance in AI chips and graphics processing units (GPUs). This surge is a testament to the increasing reliance on semiconductors across various high-growth industries.

In addition, Nvidia saw a 400% increase in its data center business, further boosting profits to astronomical levels.

Semiconductors – ARM Breakout

AI chip designer Arm (ARM) surged another 8.6% to an all-time high. The stock closed above a 164.00 entry after attempting a breakout above this level earlier in the week. A quick look at Arm’s weekly chart shows six up weeks in a row.

ARM Holdings Semiconductors

We are anticipating ARM could extend that with another weekly gain into Friday. That said, we might wait for pullback rather than chase price action at this point. ARM is already above a buy range that extending to 172.20.

Semiconductors Sector – RS Rating

Relative strength rating (RS Rating) is another critical metric used by IBD to assess a stock, ETF, or sector performance compared to the overall market. The Semiconductors Index (SMH) RS Rating rose to a maximum 99 this week. 

SMH Semiconductor Sector

Nvidia for example, sports a RS Rating of 99, the highest possible for a company in its industry.

Semiconductors have demonstrated considerable relative strength, outperforming broader market indices such as the S&P 500. For example, the Semiconductor Index (SMH), a key benchmark for the industry, has climbed substantially, reflecting investor confidence in the sector’s future.

This outperformance indicates strong institutional support and a positive outlook from investors, bolstered by robust earnings and forward-looking growth prospects.

Semiconductors – Market Trends

Market trends and the broader economic environment play crucial roles in the tech sector’s strength. The semiconductor industry’s current upward trend is fueled by several macroeconomic factors. Firstly, the global chip shortage, which began during the COVID-19 pandemic, has heightened awareness of the critical role semiconductors play in the modern economy. This shortage has led to increased investment in semiconductor manufacturing capacity and a strategic push by governments worldwide to secure supply chains.

Secondly, the digital transformation across industries is driving demand for advanced semiconductor technologies. The proliferation of 5G networks, the expansion of cloud computing, and the accelerating adoption of electric vehicles (EVs) are key trends that continue to propel the semiconductor market forward.

Semiconductors – TSM New Highs

TSM Semiconductor

Companies like Qualcomm (QCOM) and Taiwan Semiconductor ADR (TSM) are benefiting from these trends, with Qualcomm capitalizing on 5G infrastructure and Taiwan Semiconductor leading in advanced chip manufacturing.

Semiconductors – Innovative Advancements

Innovation remains at the heart of the semiconductor industry’s strength. This week, notable advancements have been made in chip technology that promises to enhance performance and efficiency. For instance, Intel unveiled its latest advancements in quantum computing and new fabrication techniques that aim to reclaim its leadership position in the industry.

Meanwhile, AMD’s introduction of its latest Ryzen processors showcases significant improvements in processing power and energy efficiency, reinforcing its competitive edge.

Furthermore, collaborations and partnerships within the industry are driving innovation. NVIDIA’s collaboration with leading data center companies to integrate its AI technology is a prime example of how strategic alliances can spur technological breakthroughs. These innovations not only boost the capabilities of semiconductor products but also open new markets and applications, enhancing growth prospects.

Strategic Positioning and Future Outlook

Looking ahead, the semiconductor industry is strategically positioning itself to capitalize on emerging opportunities. The U.S. CHIPS and Science Act, aimed at boosting domestic chip manufacturing, is expected to provide significant support to American semiconductor companies. This legislation is part of a broader trend of countries recognizing the strategic importance of semiconductors and investing heavily to ensure technological leadership.

In addition, the transition to more sustainable and energy-efficient technologies is creating new avenues for growth. Companies are focusing on developing chips that support renewable energy applications and energy-efficient computing, aligning with global sustainability goals.

Conclusion: Semiconductors

In summary, the semiconductor industry illustrated strong technical strength this week, driven by impressive earnings growth, relative price strength, favorable market trends, and continuous innovation.

Finding the best growth stocks to buy starts with knowing what winning stocks look like before they make a big run. To understand what to look for, use a checklist highlighting the seven traits of top growth stocks, and check IBD screens to see which stocks are showing those same traits right now.

These factors align well with Investor’s Business Daily criteria, highlighting the sector’s robust performance and promising future. As semiconductors become increasingly integral to technological advancement and economic growth, the industry is poised to maintain its momentum, offering lucrative opportunities for investors.

Join us in the trading room for our LIVE broadcast during market hours, as we navigate the current environment. Watch, listen, and trade from 9:20 AM to 4:15 PM Monday through Friday.

Happy Trading, 

Vin

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