Soaring Semiconductors: Nasdaq Hits Key High, ‘A Solid Trade Off’ to Earnings Gap
The Nasdaq index achieved a record-breaking high during mid-February 2021, as technology stocks continued to fuel the bull market. While the broad U.S. stock market has been rising steadily since the presidential election, semiconductor stocks in particular have been leading the way higher.
The surge in semiconductor stocks appears to be driven by several factors: An increase in demand from the automotive industry, the rapid growth of the 5G infrastructure, and recent developments such as the U.S.-China trade war.
The increase in demand for computer chips is not only driving larger shares of semiconductor-related companies, but it’s also benefitting existing top tier companies. For instance, Intel Corporation, the world’s largest chipmaker, has seen its stock price surge more than 40% in the past year.
The success of semiconductor stocks is a direct reflection of the larger trend of technology stocks. Since the tech-heavy Nasdaq’s pandemic market bottom in March 2020, the composite has surged more than 80%. This is due largely to a rebound in economic activity after lockdowns, as well as continued investment in technology and innovation.
In addition to the surge in chip stocks, the Nasdaq’s strong performance was further supported by a steady stream of robust corporate earnings reports. Many companies have grown their profits during the pandemic as a result of cost cutting and reduced capital spending. This has translated into positive news for shareholders, as companies have reported strong year-on-year profits despite the economic hardships many have faced.
At the same time, the Nasdaq index has benefited from the growth in cryptocurrency prices. Several high-profile digital currencies – such as Bitcoin, Ripple and Ethereum – have seen significant hikes over the past year, transforming from niche investments to mainstream elements of the Nasdaq.
As the Nasdaq continues to hit new highs, a considered tradeoff between robust earnings reports and semiconductor stocks is helping to drive the benchmark up. While the surging chip stocks are driving the Nasdaq higher, the steady stream of earnings reports are providing much needed comfort to investors. The combination of these powerful forces is taking the Nasdaq higher and higher, with no signs of slowing down anytime soon.