The semiconductor stocks are hot again thanks to sector bellwether Taiwan Semiconductor's (TSM) signal that smartphone orders are picking up in Asia.
Shares of the key Apple (AAPL) supplier are moving higher in morning hours Wednesday, but more importantly its report is buoying the stocks of sector stalwarts Advanced Micro Devices (AMD) , Lam Research (LRCX) , Nvidia (NVDA) , Micron (MU) , Intel (INTC) , and Xilinx (XLNX) among many others across Europe such as STMicroelectronics (STM) .
The report stoking the action comes from Digitimes, which said Taiwan Semiconductor will ramp up its 7 nanometer production rates thanks to renewed strength in orders for Android devices.
The accelerated pace could see TSMC running at full capacity by the third quarter, Digitimes reported, suggesting industry forecasts of a second-half turnaround in global chip demand could prove accurate.
"A pick-up in 7nm process utilization may lead to a particularly strong second quarter of 2019 for TSMC," the report states. "The pick-up is driven mainly by a ramp-up in chip orders for new Android devices."
The move would of course also benefit Apple and its chief Chinese rival Huawei if the overall smartphone market recovers.
The call from the company could shift analyst estimates on semi stocks, which have remained bullish in the long term but advised caution for the year as a turnaround remained uncertain.
"We have a positive view on long-term semiconductor growth, but cyclical concerns make us cautious in the near term," Nomura analyst David Wong said shortly before the report was released. He cited Intel and AMD as his top picks in the near term, but was more reticent on a longer-term play like Xilinx.
Wong noted that he expects strong growth in the sector over coming years driven by new technologies, including artificial intelligence, autonomous driving, 5G communications, IoT, and the datacenter. However, he noted that the cyclical downturn seen since 2018 could "present headwinds for chip companies through 2019 and possibly in 2020."
If proven accurate, the report from Digitimes could accelerate that timeline and soften any slowdown on the market, allowing for a much smoother road to the long-term growth Wong foresees.
The report comes at an opportune time as well, with reports of a warmer relationship between the U.S. and China coming to the fore once again and providing another potential catalyst for companies stung by trade tensions.
The Financial Times reported late Tuesday night that U.S. and Chinese officials "have resolved most of the outstanding issues" that are prolonging the trade spat.
"We're getting into the end-game stage," Myron Brilliant, executive vice-president for international affairs at the U.S. Chamber of Commerce is quoted as saying in the report. "90% of the deal is done, but the last 10% is the hardest part, it's the trickiest part and it will require trade-offs on both sides."
The removal of the artificial tamp on the share price of China-exposed semi stocks coinciding with a pick up in smartphone sales would clearly spell a further surge for stocks, rather than the cyclical slump that has been much feared since last year.
To be sure, not all semiconductor stocks are reacting positively, as it is important to observe the end markets and mitigating factors for each company rather than blindly buying the broader industry on the news.
For example, Qualcomm (QCOM) and Broadcom (AVGO) remain in the red on Wednesday morning. It is worth noting that Qualcomm remains in a unique position after its CFO departed for rival Intel, which could well be providing the pressure on shares.
Nonetheless, all signs point to a resurgence of one of the most popular sectors in recent years and opportunity could abound in the right stock selections.
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