On Friday, January 19, 2024, the S&P 500 closed the session up +1.23% at $4,839.81, marking a fresh historic all-time high. This is the first time since November 22, 2021, when stock market benchmark reached its record closure thanks to a high rise in semiconductor and other technology stocks.
Philadelphia SE Semiconductor Index
The Philadelphia SE Semiconductor Index (^SOX) concurrently reached a new peak, rising +4.02% to close out the week. As of late, semiconductor stocks have done very well due to strong demand for chips used in artificial intelligence and other high-growth product lines. The shift of this rotation to semiconductors has driven the broad market above its previous peak.
Taiwan Semiconductor is Leading the Charge
Several semiconductor stocks were top performers on Friday amidst the record-setting rally.
Taiwan Semiconductor Manufacturing Company (NYSE: TSM), the world’s largest manufacturer of chips, recently forecasted that demand for AI chips would be in high demand. In 2024, TSM predicts that capital spending on advanced capacity will rise by over 50%.
TSM’s bullish forecast adds a layer of credibility to the growth story in semiconductors for data centers, AI, and other internet connected devices. This ‘new cycle’ of semiconductor demand is supposed to generate a multi-year rise for the industry.
Besides the positive trend in demand, memory chip prices are also on a rebound. The prices of dynamic random access memory (DRAM) have increased by nearly 15% from October 2022. This suggests better supply-demand conditions with regard to last year’s inventory adjustment. Higher prices in memory also increases profit margins across the semiconductor supply chain.
All these dynamics illustrate why semiconductor stocks have taken the role of market leaders. With strong growth drivers continuing well into 2024 and beyond, the primary chip makers are set to benefit. As a result, it is no surprise that TSM jumped as much as 15% in the last 5 days.
Other Notable Semiconductor Stocks
Nvidia (NASDAQ: NVDA) – The leading designer of graphics processing units (GPUs) jumped by +4.17% on Friday. The data center business, owned by Nvidia is looking promising in 2024, as the technology of AI adoption takes shape. The upcoming Hopper GPU architecture will continue to raise the competitive level at which a company operates.
Advanced Micro Devices (NASDAQ: AMD) – The processor and chip manufacturer surged by +7.11% on the final day of the trading week, far more than the other semiconductor stocks. AMD is poised to capture more market share within PCs and servers because of its strong products. Also, the pending acquisition of Xilinx creates high potential drivers of growth in core end markets, 5G infrastructure, and automotive electronics.
Applied Materials (NASDAQ: AMAT) – The semiconductor equipment manufacturer’s shares closed up by +4.74% on Friday. Given the anticipated growth in capital spending across industries, this allows Applied Materials to benefit from that trend. As chipmakers are spending on increasing production, they will make Applied’s market-leading tools and machinery their demand.
Marvell Technology (NASDAQ: MRVL) – Marvell closed Friday’s session +4.21% and continues to gain traction as a company owing itself numerous positive catalysts, 5G network upgrades, and increasing design activity. The company also completed its purchase of data center interconnect provider, Innovium, at the end of 2019, adding more muscle to its presence.
The CEO transition from Bob Swan to Pat Gelsinger fueled an increase of +3.02% in Intel Corp (NASDAQ: INTC) stock as investors responded positively. Intel CEO Gelsinger outlined aggressive plans to revive the company’s manufacturing technology as it battles competitors like AMD and Nvidia. If Intel were able to follow on their ‘IDM 2.0’ strategy, narrowing its operations like a pure foundry, then it would regain the leadership status in the semiconductor industry
ASML Holding (NASDAQ: ASML) – The semiconductor equipment company delivered a modest +1.79% on Friday. The company has seen nearly a +3% gain after reporting strong quarterly earnings earlier in the week. Among the causative factors that led to ASML widely outperforming in 2022, amidst a generalized tech selloff, was market dominance of lithography machines needed for manufacturing advanced chips.
Future Outlook for Semiconductor Stocks
The picture for the semiconductor stocks remains positive into 2024. Leading-edge logic and memory chips have a sound end-market demand. Circumstances seem to appear favorable to sustained growth going into the future.
Wall Street analysts continue to be bullish on the semiconductor space. According to Bank of America, the percentage of investors buying call options in semiconductor stocks is at its highest since early 2018. Rising earnings estimates are yet another indicator reflecting better moods. In the past three months, earning per share (EPS) estimates for 2024 have gone up in an average of almost 4% among semiconductor firms globally.
Given the favorable dynamics for fundamentals, valuation multiples have increased among chip stocks. But as of now, valuations are moderately high, because it is believed that semiconductor earnings growth will exceed revenue growth of all sectors this year.
Thoughts Going Forward
The S&P 500 has set a new record high compliments largely to several semiconductor stocks named herewithin. The latest tech-led rally was fueled by the major players of Taiwan Semiconductor, Nvidia, AMD and Applied Materials. The outlook for semiconductor companies to deliver good returns in 2024 looks constructive, thanks to favorable demand trends and the dissipation of headwinds. Investors could fair well investing in 2024 within this high-growth part of the technology sector.
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