Semiconductor stocks were back at centre stage this week as shares popped across the board. There were a variety of reasons, ranging from trade exemptions in the United States to more earnings. So let’s get into those events – and one Canadian stock that stands to benefit.
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U.S. trade exemptions
The Biden administration is preparing new trade restrictions to prevent China from accessing advanced semiconductor technology. However, semiconductor equipment manufacturers in the Netherlands and Japan are expected to be exempt from these restrictions.
This potential carveout has led to a significant increase in stock prices not just in those countries, but North America as well. The administration faces pressure to curb China’s technological advancements, and these companies must navigate U.S. policy goals carefully.
This rule will expand the Foreign Direct Product rule (FDPR), but will exclude key allies such as Japan, the Netherlands, and South Korea. The FDPR allows the U.S. to influence companies abroad that use American inputs, creating ongoing concerns for Japanese and Dutch firms about future restrictions. Furthermore, it will impact exports from countries like Israel, Taiwan, Singapore, and Malaysia. The rule is still in draft form and may change before its expected release next month.
Semiconductor earnings
Semiconductor stocks saw a further boost from earnings and expectations in the coming weeks. Advanced Micro Devices (NASDAQ:AMD) stock jumped over 9% following its second-quarter earnings report, which surpassed analysts’ expectations with an EPS of US$0.69 and revenue of US$5.8 billion.
The company attributed its strong performance to high demand for its artificial-intelligence(AI)-related graphic processing units (GPU) and central processing units (CPU). AMD’s Data Center revenue, including GPU and CPU sales, reached US$2.8 billion, a 115% increase from last year. The company’s positive guidance for the third quarter, driven by AI demand, further boosted investor confidence.
In response, Nvidia‘s stock surged over 10% after AMD reported strong quarterly results and issued a positive outlook. The results eased concerns about the AI trade’s sustainability.
Additionally, Morgan Stanley upgraded Nvidia to a ‘Top Pick’ following a recent stock decline, citing strong short-term and long-term prospects despite concerns over spending plans, competition, export controls, supply chain issues, and valuation. This positive sentiment also boosted other semiconductor stocks, including a Canadian option.
A Canadian stock to pick up
Amidst all this great news for semiconductor stocks, there is certainly one that looks like it will stand to benefit. Celestica (TSX:CLS), known for its electronics manufacturing services, could potentially benefit from the overall positive momentum in the semiconductor and AI markets driven by companies like AMD and Nvidia.
As companies like AMD and Nvidia experience increased demand for their AI and data centre products, their suppliers and partners, including Celestica, could see a rise in orders for components and assembly services.
The surge in AI-driven technologies and data centre expansions means that companies involved in the supply chain, such as Celestica, could benefit from more business opportunities. Celestica’s involvement in the manufacturing of advanced technology components positions it to benefit from the ongoing innovations in AI and high-performance computing.
Bottom line
It was a great week for semiconductor stocks. But it stands to only improve from here. All this news remains positive about the future. So when those future results come down the pipeline, investors could see great things in their portfolios.
