Semiconductor Earnings Wrap With Nvidia Results

The chip sector comes into sharp focus ahead of a key earnings report, with signs of divergence in the sector.

Mega-cap chipmaker Nvidia (NVDA) is set to deliver earnings Wednesday, and considering how investors have treated its competitors so far this earnings season, there could be a high bar for success.

Semiconductor earnings to date left behind a bloodied battlefield. The most severely wounded was Intel (INTC), which suffered a 12% share decline after delivering what investors believed to be disappointing guidance. Advanced Micro Devices (AMD), an artificial intelligence competitor of NVDA's, was hit following its report, while Texas Instruments (TXN) and Qualcomm (QCOM) fared a little better. The exception, at least until now, was Arm Holdings (ARM), which catapulted more than 50% following monster earnings results earlier this month.

One school of thought suggests the sector was so hot approaching earnings that strong results were already built into prices. That set the shares up to fall if earnings were less than perfect. If that's the case, then the sector pullback might be temporary. After all, the PHLX Semiconductor Index (SOX) rose more than 60% between the end of 2022 and mid-January 2024 before earnings season began despite the industry's lingering inventory overhang.

The more worrisome theory is that semiconductor firms face real struggle, at least near term, even in the high-flying AI business. Much of the sector's 2023 sizzle reflected AI enthusiasm.

"AMD stock's drop suggests that anything less than a huge guidance raise will be treated harshly when it comes to popular AI stocks this earnings season," Barron's noted.

Nvidia's report may provide some insight.