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Why Chip Stocks Continue to Surge

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Tech stocks continue to surge

Stock markets were choppy on March 20, after the Fed’s dovish comments worried investors about an economic slowdown. However, stocks surged yesterday due to low interest rates, which have supported stocks for a decade. The NASDAQ Composite rose 1.4%, nearing a six-month high.

After Micron Technology (MU) reported better-than-expected earnings results and surged 9.6% yesterday, most major chip makers’ stocks rose. NVIDIA (NVDA), AMD (AMD), and Applied Materials (AMAT) rose 5.4%, 8.5%, and 4.4%, respectively, while the VanEck Vector’s Semiconductors ETF (SMH) jumped 3.46%.

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Semiconductor stocks have soared in the last couple of weeks

As they did last year, semiconductor stocks outperformed the tech sector and broader markets last week, with Broadcom (AVGO) announcing better-than-expected earnings.

Chip stocks underperformed broader markets in the last quarter of 2018, due to worries about how US-China trade tensions would affect the companies and fears of fundamentals weakening with the economic slowdown.

This year, trade tensions are still hovering but have eased. Solid earnings reports have soothed investors, resulting in the NASDAQ being up 19.0% year-to-date. SMH is up 26.5%.

That said, there are still several risks for the tech sector that markets seem to be ignoring. Valuation has stayed high despite guidance suggesting slowing earnings growth, US-China trade tensions remain, and the global economy is showing more signs of a slowdown.

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