By Lewis Krauskopf

U.S. Semiconductor Companies Under Investor Scrutiny

NEW YORK (Reuters) -U.S. semiconductor companies will get a closer look from investors in coming weeks, after diverging reports from two industry leaders abroad set off a volatile few days of trading.

Semiconductors are key components in a broad array of products, making chipmakers and related equipment companies important indicators for the economy. Wall Street closely monitors these stocks as barometers for overall market trends.

This year, the industry has garnered attention amid the artificial intelligence (AI) enthusiasm driving the stock market to record highs, with Nvidia (NASDAQ:NVDA) emerging as a standout performer.

> "It's vitally important that these chip stocks hold up," said Matt Maley, chief market strategist at Miller Tabak. "If they go down, it weighs on the rest of the market."

The Philadelphia SE Semiconductor index has pulled back after climbing over 40% in the first half of the year. It is currently up about 25% in 2024, in comparison to a 22.5% gain for the benchmark S&P 500.

Semiconductor stocks comprise 11.5% of the S&P 500, with Nvidia approaching Apple (NASDAQ:AAPL) as the largest company by market value, holding a 6.8% weight in the index.

Recent Market Activity

The sector faced volatility recently. Chip shares fell on Tuesday after ASML (AS:ASML), Europe's largest tech firm, projected lower-than-expected sales and bookings for 2025. However, the group rebounded on Thursday after Taiwan Semiconductor Manufacturing Co, a producer of advanced chips utilized in AI applications, reported a forecast-beating 54% rise in quarterly profit.

Following these announcements, the SOX semiconductor index is down 2.5% this week, while the S&P 500 is up 0.5%.

Upcoming Corporate Reports

The semiconductor sector awaits important corporate reports, including Texas Instruments (NASDAQ:TXN) and Lam Research (NASDAQ:LRCX) next week. Texas Instruments produces products used in automotive and industrial applications, which could signal whether sluggish areas of the chip industry are beginning to recover, according to Daniel Morgan, portfolio manager at Synovus (NYSE:SNV) Trust. Overall, he noted that semiconductor stocks are trading at 5.6 times price-to-book valuation, a fair level compared to their peak of over 8 times in 2021.

Advanced Micro Devices (NASDAQ:AMD)'s earnings report is anticipated the following week, offering insights into the demand for AI-related products ahead of Nvidia's highly awaited report later next month. Should AMD project a strong forecast for its AI chips, it would be considered bullish for the sector, as stated by Maley.

The upcoming semiconductor reports coincide with a busy week for U.S. corporate earnings overall, with over 100 S&P 500 companies expected to report, including Tesla (NASDAQ:TSLA), Coca-Cola (NYSE:KO), and IBM (NYSE:IBM).

> "The (semiconductor) group is very important, if nothing else because of the market cap that it carries," said Chuck Carlson, CEO at Horizon Investment Services.