When smartphone sales rise or fall, chipmakers are impacted. The same goes for sales of automobiles, personal computers, data centers and other end markets for microprocessors.
Semiconductor stocks turned south last fall amid slowing demand, especially for memory chips. The slowdown has been broad-based with few sectors unaffected. But in recent weeks, chip stocks have rebounded as their outlook has improved.
The semiconductor market is a key sector to watch because chips play a vital role in new technologies. Computer chips are the enabling technology behind a host of emerging trends, from the Internet of Things and 5G wireless to self-driving cars and artificial intelligence.
Top Semiconductor Stocks On IBD Watch Lists
However, the MarketSmith Growth 250 list includes nine semiconductor stocks. The Growth 250 is a curated list of high-potential stocks poised for possible breakouts. Semiconductor stocks on the list include Xilinx, Monolithic Power Systems (MPWR), Broadcom (AVGO), Semtech(SMTC), KLA Tencor (KLAC), Microchip Technology (MCHP), Diodes (DIOD), Texas Instruments(TXN) and Cree (CREE).
Remember, when looking for the best chip stocks to buy, watch lists like the IBD 50 are just a starting point. Before you buy, make sure the stocks are forming proper bases and hitting appropriate buy points.
Xilinx stock broke out on Jan. 24 after the San Jose, Calif.-based company delivered a beat-and-raise quarterly earnings report. It hit a buy point of 95.28 out of a seven-week consolidation period, a shallow cup without handle.
In addition to the IBD 50 and Growth 250 lists, Xilinx is on IBD’s Leaderboard list of actionable stocks.
Xilinx is benefiting from healthy sales of chips for data centers and 5G wireless networks. Its processors also are used in artificial intelligence applications.
Monolithic Power Systems
Monolithic Power Systems stock has been consolidating for 25 weeks with a proper buy point of 152.31.
On Feb. 12, the Kirkland, Wash.-based company delivered in-line results for the fourth quarter. MPS executives forecast market share gains in cloud computing, automotive and telecommunication markets.
Broadcom stock hit a record high of 286.63 Feb. 20 after consolidating for 64 weeks. But it couldn’t follow through. It fell in three of the next four sessions.
Broadcom makes chips for wired and wireless communications, enterprise storage, and industrial markets. With its recent purchase of CA Technologies, it aspires to be a provider of diversified information-technology infrastructure.
Microchip Technology stock has formed a cup-with-handle base with a buy point of 91.92. However, the extreme depth of the cup portion gives the stock a higher risk of failing if the stock can break out. In a good cup with handle, the price correction within the cup portion typically does not exceed 30% to 33% from the cup’s highest intraday price to its intraday low.
Microchip’s cup base features a 41% decline from the cup’s left-side peak of 104.20.
On Feb. 5, the Chandler, Ariz.-based company beat Wall Street’s targets for its fiscal third quarter, but came up short with its guidance.
Microchip Technology makes microcontroller, analog, connectivity and power management semiconductors. It also makes field-programmable gate arrays. Microchip serves customers in industrial, automotive, consumer, aerospace and defense, communications and computing markets.
The stock broke out after the Plano, Texas-based company reported better-than-expected fourth-quarter results.
Diodes earned an adjusted 65 cents a share on sales of $314.5 million in the December quarter. Analysts expected it to earn 58 cents a share on sales of $313.6 million. On a year-over-year basis, earnings per share rose 55% while sales climbed 17%.
Diodes makes application-specific semiconductor products within the broad discrete, logic, analog and mixed-signal semiconductor markets.
The VanEck Vectors Semiconductor ETF (SMH) was trading at $103.23 per share on Thursday afternoon, down $0.15 (-0.15%). Year-to-date, SMH has gained 5.54%, versus a 4.93% rise in the benchmark S&P 500 index during the same period.
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