The world of semiconductors is a hot topic right now as companies start to capitalize on their surge in value. The Nasdaq Composite index hit a key high on Friday, with the semiconductor sector driving the majority of the gains.
Investors have been focusing on the soaring semiconductor sector as these are seen as key components in enabling the fourth industrial revolution. With the pandemic accelerating digital transformation across numerous sectors, demand for semiconductors is skyrocketing. Companies are also finding a variety of applications for semiconductors ranging from autonomous vehicles to artificial intelligence products.
The sector’s performance has been especially impressive in the past three months, with semiconductors rising by 5.3%. An AI chipmaker, Nvidia, is the standout stock after its shares surged over the last year due to the mobile computing boom. Despite growing demand, semiconductor companies are being conservative in their expectation for the current quarter due to Huang’s warning about oversupply.
A solid trade-off between earnings and revenue growth has been seen in some of these stocks with an emphasis on margin expansion rather than pushing for top-line growth. This trade-off sparked a few days of sell-off in the sector as investors sold off certain stocks on the fear of an earnings gap.
However, despite the brief sell-off, this strategy has been successful for semiconductor companies as they continue to generate strong results and streamline their operations. In addition, the slowdown in the global economy has helped push up the prices of computer chips, helping companies offset rising costs.
Semiconductor companies have already benefited greatly from the boom and are likely to continue profiting in the nearest future. Their performance has been integral in Nasdaq’s gain, and with the possibility of further digital transformation, the sector should continue to prosper.