Advanced Micro Devices, Nvidia, ON Semiconductor and Arista Networks

For immediate release

Chicago, IL – November 3, 2023 – Today’s Zacks Investment Ideas feature highlights Advanced Micro Devices AMD, Nvidia NVDA, ON Semiconductor ON, Intel INTC and Arista Networks ANET.

Semifinal: 5 factors that suggest the correction is over

After a beating in 2022, semiconductor stocks bounced back in the first half of 2023 before retreating in the past few months. Below are 5 reasons why the worst is over for semiconductors:

Historical seasonal trends

Stock investors often use historical seasonal trends as a valuable tool to gain an edge in the market. By analyzing past price movements and patterns specific to certain times of the year, investors can identify recurring trends in stock and industry performance. It’s hard to find a more stable and reliable historical seasonal trend than semiconductor stocks. The PHLX Semiconductor Index has been higher 80% of the time over the past twenty years with an average gain of 3.9%. Selected individual names do even better in November. For example, Advanced Micro Devices has been higher in 8 of the last 10 Novembers for an average increase of 15.9%. Meanwhile, industry group colleagues Nvidia has accumulated gains of 9.1% on average over the same time.

Strong earnings

So far this earnings season, semiconductor earnings have been mixed. For example, ON Semiconductor fell more than 20% after reporting disappointing earnings. However, industry leaders such as AMD and Intel gave impressive results.

Investment in AI is spreading

Earlier this week,Arista Networks, a leading provider of cloud networking solutions, reported a staggering 46% year-over-year revenue growth. Arista’s earnings prove that the AI revolution is still in its infancy, because as AI technologies advance, so does the demand for high-performance, low-latency network infrastructure. Semiconductors are another group of stocks that directly benefit from the growth of AI.

Institutional “Window Decoration” at the end of the year

On Wall Street, the term “windowing” refers to the practice of institutional money managers making their portfolios appear more attractive or healthier than they actually are to clients, especially before reporting periods such as quarterly and annual reports. To dress up their portfolios, many managers will sell the laggards and buy the high performers just before the report date.

By showcasing these stronger assets in their reports, fund managers seek to impress clients by giving a false impression of the fund’s performance. In other words, the manager shows that the fund hasn’t missed the big winners for the year. S Semiconductor Index ETF at ~40% YTD (and many individual names like NVDA at more), institutional investors are likely to pile into semiconductors at the end of the year for showcase purposes.

Bullish technical indicators

Although many investors are bearish on semiconductors after the latest correction, longer-term chart patterns are showing signs of life. For example, industry leader AMD is finding support at its rising 200-day moving average and is poised to break a downtrend dating back to June.

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