SAN FRANCISCO—Semiconductor stocks are showing surprising strength in spite of difficult global macroeconomic conditions, thanks to lower than expected estimate declines by chip firms and Wall Street, according to a JP Morgan analyst.
The Philadelphia Stock Exchange SOX index is now up 9 percent since bottoming out on July 17, compared with a 1 percent increase for the S&P500, said analyst Christopher Danely in a report circulated late Wednesday (Aug. 1). "We believe this has been caused by smaller than expected estimate reductions," Danely wrote.
Danely said JP Morgan was expecting consensus earnings estimates for large cap chip companies to decline by 5 to 10 percent during the recent period of earnings announcements. But consensus analysts' expectations have been reduced by an average of only 3 percent, according to Danely.
"We believe the reasons that earnings have held up better than expected are that margins and inventory are close to the trough," Danely wrote.
The Philadelphia Stock Exchange SOX index since July 1.
Source: Google Finance