Semiconductor Stocks Will Split Into ‘Haves And Have-Nots,’ Raymond James Strategist Says

• Orton said he is looking for chipmakers with accelerating earnings growth, a measure he calls the “second derivative of earnings.”
• The strategist added that TSMC’s nearly 60% year-over-year sales growth in October makes the company particularly compelling.
• According to him, Monday’s semiconductor rally was an “oversold bounce” after a steep sector decline, rather than evidence that Nvidia’s competitors are gaining market share.

The sharp pullback in semiconductor stocks may be creating opportunities, but investors should be careful about which names they buy, Matt Orton, head of advisory solutions and market strategy at Raymond James Investment Management, said on Tuesday. 

“I’m certainly not buying the overall SOX index,” Orton said in an interview with CNBC, referring to the Philadelphia Semiconductor Index (SOX). Instead, he said, companies such as Taiwan Semiconductor Manufacturing Co. (TSM) and memory chipmaker Micron Technology (MU) “are much more compelling today.”

Read Next

SPCX Secures Singulus Deal To Scale Starmind Space Data Center Satellites

Anan Ashraf

“There’s going to be a tale of haves and have-nots across the semiconductor complex.”

Matt Orton, Head of Advisory Solutions And Market Strategy, Raymond James Investment Management

The semiconductor sector has rebounded this week after coming under pressure from concerns about AI spending and the outlook for data center development following the midterm elections. 

Chip stocks rose in morning trade on Tuesday, holding up even as a hotter-than-expected October CPI reading pressured the broader market. The iShares Semiconductor ETF (SOXX) rose 1.3% in morning trade, while the VanEck Semiconductor ETF (SMH) edged 0.7% higher.

On Stocktwits, retail sentiment around SOXX trended in ‘extremely bullish’ territory over the past day, while sentiment around SMH trended in the ‘bullish’ zone.

Market Strategist Looking For Accelerated Earnings Growth

Orton said he is focused on companies whose growth is accelerating, rather than simply those already reporting high growth. He said this was the “second derivative of earnings,” or the rate at which earnings growth itself is increasing. 

“Those are the semiconductor names you want to be in, not just the ones with high absolute growth,” he said.

Orton added that while the pullback had created buying opportunities in some stocks, investors should not assume the entire sector is now a bargain. He pointed to TSMC, the world’s largest contract chipmaker, noting that it reported October sales growth of almost 60% from a year earlier.

“I think there’s select names like TSMC, perhaps a Micron in the memory space, that are much more compelling today and that I would want to be buying,” Orton said.

MU stock edged 0.8% lower in morning trade on Tuesday, while TSM shares gained 2.5%. On Stocktwits, retail sentiment around Micron trended in the ‘extremely bullish’ territory over the past day. Sentiment around TSMC trended in the ‘neutral’ zone.

Orton Questions Nvidia’s Appeal After Sector Rebound

According to Orton, Nvidia (NVDA) presents a more complicated case. He noted that its shares trade at a low multiple of expected earnings, “which is crazy to think it’s that cheap.” 

However, he questioned whether the stock was still attractive given “some of the issues hanging over it,” acknowledging the recent investigation into Nvidia CEO Jensen Huang.

Monday’s gains in Advanced Micro Devices (AMD) and Broadcom (AVGO) fueled speculation that Nvidia’s competitors could be gaining market share. However, Orton said the strength across chip stocks was more likely a rebound after the sector’s steep selloff.

“I don’t think you can read into the fact that you had extreme strength across the semiconductor complex, and attribute it to anything to do with the fact that Nvidia doesn’t matter as much,” he said. According to him, the gains were an “oversold bounce” rather than evidence of a “fundamental shift” in the competitive landscape.

NVDA stock dropped around 4% in morning trade on Tuesday, while AMD stock gained over 5% and AVGO shares climbed 4.2%. 

Nvidia was the top-trending ticker on Stocktwits at the time of writing, with retail sentiment in the ‘bullish’ zone over the past 24 hours. Sentiment around AMD trended in ‘extremely bullish’ territory, while sentiment around Broadcom shifted to ‘bullish’ from ‘neutral’.

Read also: Google, Nvidia, AMD And Others To Invest $26B In Anthropic Alongside IPO

For updates and corrections, email newsroom[at]stocktwits[dot]com.