Can Intel, AMD and Nvidia’s share prices continue to outperform?

Nvidia [NVDA], Advanced Micro Devices [AMD] and Intel’s [INTC] share prices are firmly in the spotlight at the moment, not least because of impressive stock market performances from Nvidia and AMD relative to the wider S&P 500 index. Recent M&A activity has also contributed to the press surrounding these stocks. Intel’s share price hasn’t performed as well, but there may be reasons to expect an imminent upturn.

Overall, semiconductor stocks have outstripped the S&P 500 index in 2020. This outperformance is illustrated by two ETFs: the iShares PHLX Semiconductor ETF SOXX and the SPDR S&P 500 ETF SPY. The semiconductor-focused ETF has accelerated relative to the broader market, rising by 18.84% versus 6.17% in the S&P 500 ETF this year, according to MarketWatch’s Phillip Van Doorn.

Emphasising the health of semiconductor companies, two-thirds of the 30 SOXX semiconductor firms increased revenue in their most recently reported quarter versus the same quarter in 2019, in contrast to the wider market where circa a third of stocks reported year-on-year increases in quarterly sales.

Is the outlook bright for the semiconductor sector, and can this overriding growth trend continue?

Nvidia’s share price gets shot in the ARM

Nvidia’s share price has more than doubled this year, surging from $239.91 to close at $500.19 on Monday, having fallen from its all-time peak of $589.07 on 2 September. Nvidia’s share price tear is reflected in its strong quarterly figures last month, with revenue (rising 39% to $3.87bn) and EPS ($2.18 vs $1.97) both topping forecasts.

Before Friday’s wider market fall, Nvidia’s share price moved higher last week, after revealing a $40bn deal to buy UK chipmaker ARM Holdings from Softbank.

However, CMC Markets’ chief market analyst, Michael Hewson, cautioned of a potential pushback from the likes of Apple [AAPL], which licences technology from ARM for the iPhone and iPad, and global regulators.

Despite the potential for regulatory issues on the deal, analysts offering 12-month price forecasts for Nvidia’s share price on the Financial Times have an average target of $562.50. Hitting this would see an 11.3% upside on Nvidia’s share price through 22 September’s close.

Stellar year for AMD’s share price

AMD’s share price had risen rapidly this year, from below $30 to as high as $94.28 at the start of the month, before subsiding to close at $77.70 on 22 September. When compared with the total return of the S&P 500, the difference is stark: AMD has soared 144.55% in the 12 months to 18 September’s close, versus a total return of 13.08% on the S&P 500.

At the end of July, AMD issued a bullish forecast, with full-year revenue growth expectations upgraded to 32%, a healthy jump from the 25% growth forecast in April. This followed a mixed Q2 performance, with EPS of $0.13 missing the $0.16 consensus estimate, while revenue of $1.93bn exceeded forecasts.

Among the analysts, AMD has an average price target of $78.50, which would see a slight 1.03% upside if hit.

Fundamentals offer hope for Intel’s share price

Intel’s share price performance hasn’t pulled up any trees, and in fact, has declined 16% over the past three months. However, in terms of return on equity (ROE) – a measure of the profitability of a company in relation to shareholder’s equity and a test of how effectively a company is growing its value – Simply Wall St notes that Intel’s ROE of 29% is higher than the industry average of 11%.

Adding a further positive note, Intel’s net income growth of 18% is up against the industry average growth rate of 16%, over the last five years. Analysts have pinned a $55 12-month price target on Intel, which would see a 10.1% gain on Intel’s share price through 22 September’s close.