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And the worst performing Nasdaq 100 component thus far on th
Synopsys SNPS recently unveiled Synopsys.da, an extension to its existing Electronic Design Automation (“EDA”) Solution called Synopsis.ai. This new upgrade will allow chipmakers to obtain actionable design insights to uncover pow
Intel stock has underperformed the equity markets over the last two decades, and currently lags far behind AI-fueled rivals like Nvidia. Here's why INTC remains a mega-cap tech stock to skip right now.
The tech sector is back in 2023, riding the excitement regarding AI and other technological advances to massive gains. The
Technology Select Sector SPDR ETF (
NYSEARCA:XLK)
, which invests in the technology sector of the S&P 500 (
SPX
), has returned a scintillating 42.6% year-to-date. But this type of stellar performance is nothing new for this top tech ETF, which has been rewarding its investors with excellent returns for many years. So, let’s take a look at this long-term winner that is still attractive.
Stellar Track Record
XLK has established itself as a consistent, long-term winner. How good has XLK’s performance been over the years?
As of the end of the most recent quarter, XLK put up an impressive annualized total return of 19.5% over the past three years. Zooming out to five years and 10 years, the fund has managed to return over 20% on an annualized basis over each time frame, with outstanding total annualized returns of 21.5% over the past five years and 20.7% over the past 10 years.
These returns are great on their own accord, but how do they stack up against the broader market over the long term? As of the end of the most recent quarter, the
Vanguard S&P 500 ETF (
NYSEARCA:VOO)
, a good proxy for the S&P 500, returned 14.6% on an annualized basis over the past three years. Over the past five years, it has returned 12.3% on an annualized basis, and over the past 10 years, it has posted an annualized return of 12.8%.
These are solid returns, but XLK’s returns over each of the three time frames are superior, putting it among one of the rare ETFs that can say it has decisively beaten the market over the long run.
A Cost-Effective Option
XLK has given investors a market-beating performance over the past decade, and it does so for a very reasonable price, with an expense ratio of just 0.10%. This means that an investor putting $10,000 into XLK today would pay just $10 in fees in year one. Assuming the ETF returns 5% per year going forward and the fee remains 0.10%, this same investor would pay a reasonable $128 in fees over the course of the next 10 years.
It's worth noting that XLK's expense ratio is significantly lower than that of the
Invesco QQQ Trust (
NASDAQ:QQQ)
, the largest and most popular tech-centric ETF, which charges a still-reasonable 0.20%.
XLK's Holdings
XLK sports 67 holdings, covering the technology sector of the S&P 500. Below, you’ll find an overview of
XLK’s top 10 holdings from TipRanks’ holdings tool.
Despite the fact that it has 67 holdings, this is a fairly concentrated fund, as its top 10 holdings account for 69.5% of assets, and its top two holdings, Apple (
NASDAQ:AAPL
) and Microsoft (
NASDAQ:MSFT
), combine to make up more than 44%. This isn’t necessarily a bad thing, but investors should be aware that XLK has a lot of exposure to these two stocks.
Part of the reason that XLK has outperformed the market over the years is that its top holdings include some of the most innovative companies in the U.S. market (not to mention globally), creating the products, technologies, and applications that have revolutionized the way many people work and live their day-to-day lives.
This is true whether it’s consumer-facing products from the likes of Apple and Microsoft, enterprise-facing products from Adobe (
NASDAQ:ADBE
), Salesforce (
NYSE:CRM
) and Oracle (
NYSE:ORCL
), or the semiconductor companies that make many of these applications possible, like Nivida (
NASDAQ:NVDA
), Broadcom (
NASDAQ:AVGO
) and Advanced Micro Devices (
NASDAQ:AMD
).
You may notice that several big names are conspicuously absent from XLK’s portfolio. The likes of Amazon (
NASDAQ:AMZN
), Meta Platforms (
NASDAQ:META
), Alphabet (
NASDAQ:GOOG
) (
NASDAQ:GOOGL
), and Tesla (
NASDAQ:TSLA
), are not part of XLK’s portfolio.
This is because while we often think of them as tech stocks, the S&P index classifies Meta Platforms and Alphabet within communications services, and they can be found within the
Communication Services Select Sector SPDR Fund (
NYSEARCA:XLC)
.
Meanwhile, Amazon and Tesla are classified as consumer discretionary companies and can be found within the
Consumer Discretionary Select Sector SDPR Fund (
NYSEARCA:XLY)
, where they combine to make up more than 40% of the fund’s holdings.
An Outperform Smart Score Rating
TipRanks’ Smart Score system rates XLK’s top holdings highly. The
Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks a score from 1 to 10 based on eight market key factors. A score of 8 or above is equivalent to an Outperform rating. As you can see in the table above, an impressive eight out of XLK’s top 10 holdings have Outperform-equivalent Smart Scores of 8 or higher. XLK itself features an Outperform-equivalent ETF Smart Score of 9.
Is XLK Stock a Buy, According to Analysts?
Turning to Wall Street, XLK earns a Moderate Buy consensus rating based on 55 Buys, 12 Holds, and no Sell ratings assigned in the past three months. The
average XLK stock price target of $199.81 implies 15.9% upside potential.
Looking Ahead
XLK has put up a banner performance in 2023. Still, this outstanding performance is nothing new -- it is one of the rare ETFs that has soundly beaten the broader market over a long period of time. The ETF enjoys favorable views from analysts and an excellent rating from TipRanks’ Smart Score System.
However, investors should be aware that while XLK owns many of today’s tech companies, it doesn’t own some of the archetypical technology stocks like Meta Platforms or Amazon, as these are grouped into different sectors by the S&P. Nevertheless, XLK’s investor-friendly expense ratio, impeccable track record, and strong portfolio of top technology companies make it look like a solid long-term bet.
Disclosure
SoftBank Group Corp's Arm Holdings Plc on Thursday told potential investors in its roughly $5 billion initial public offering that cloud computing expansion and royalty revenue represented major growth areas for the chip designer.
Looking at options trading activity among components of the Russell 3000 index, there is noteworthy activity today in Spotify Technology SA (Symbol: SPOT), where a total volume of 10,658 contracts has been traded thus far today, a contract volume which is representative of appr
Advanced Micro Devices AMD has been benefiting from an expanding clientele. The company recently announced that Hitachi Astemo has selected its adaptive computing technology to power its new stereo-format, forward-looking camera.F
Advanced Micro Devices (NASDAQ: AMD) investors are sitting on solid gains of almost 70% in 2023 thanks mainly to the broader surge in semiconductor stocks, even as the company's financial performance has left a lot to be desired.
Launched on 07/10/2001, the iShares Semiconductor ETF (SOXX) is a smart beta exchange traded fund offering broad exposure to the Technology ETFs category of the market.
AI (Artificial Intelligence) brings enormous growth opportunities for Advanced Micro Devices (
NASDAQ:AMD
) stock. For instance,
AMD’s CEO Lisa Su highlighted during the Q2 conference call that
AI (Artificial Intelligence) offers the company a multibillion-dollar growth opportunity, spanning across multiple verticals, such as cloud computing and edge technology.
During the 2023 Communacopia and Technology Conference, Su reaffirmed that AI remains the top priority for AMD. She also stated that the company is witnessing a consistent increase in customer engagement within the AI domain, keeping most Wall Street analysts in awe of AMD stock.
Investors should note that the company has increased its AI-related R&D and go-to-market investments to capture a significant market share. In addition, it is rapidly expanding its ecosystem of AI hardware and software partners. All these indicate that AMD, like Nvidia (
NASDAQ:NVDA
), is expected to benefit significantly from the unprecedented demand for AI platforms.
Following the Communacopia and Technology Conference,
Goldman Sachs analyst Toshiya Hari reiterated the Buy recommendation on AMD stock. Moreover, his price target of $137 implies an upside potential of $25.375 from current levels. While Hari is bullish about AMD stock, let’s look at the consensus rating for AMD stock.
Is AMD a Buy, Sell, or Hold?
AMD stock sports a Strong Buy consensus rating on TipRanks, reflecting 25 Buy and seven Hold recommendations. Further, it has received 21 Buy recommendations from 27 Top Wall Street analysts covering the stock.
Overall, analysts’ 12-month average price target of $142.06 implies an upside potential of 30% from current levels.
Investors should note that TipRanks identifies the
Top Wall Street analysts per sector, per timeframe, and against different benchmarks. The ranking is based on an analyst’s ability to deliver higher returns through recommendations. Following the ratings, TipRanks’ algorithms calculate the statistical significance of each rating, the analysts’ overall success rate, and the average return.
The Final Takeaway
AMD stock is up about 69% year-to-date. Meanwhile, the strong demand for its MI250 accelerator and the launch of MI300 in Q4 are encouraging signs for future growth. Additionally, the expected recovery in the PC segment and AMD's focus on the high-end market are expected to bolster its growth trajectory. Further, analysts’ Strong Buy consensus rating supports its bull case.
Disclosure
2023 owes a lot to artificial intelligence (AI). A stock market sell-off last year dragged the Nasdaq Composite down 33%. However, excitement over AI has prompted a solid recovery, with the same index up 34% since Jan. 1.
Semiconductor stocks, like NVDA, AMD, and AVGO, have been red-hot this year, thanks in large part to the growing number of firms seeking to equip themselves to capitalize on the
artificial intelligence (AI) gold rush. After such a hot run, one has to wonder if the chip stock rip has any more room to the upside. Though it's clear that many analysts and investors underestimated AI's potential to propel Nvidia's sales this year, the real danger is what could happen to the stock once estimates climb a tad too high.
Indeed, chip stocks are no stranger to booms and busts. What's striking about Nvidia stock's historic past-year rise is how quick the boom took hold and the unprecedented heights that shares have been driven to.
The November 2022 launch of OpenAI's
ChatGPT showed us the true power of generative AI, and nearly a year later, the AI hype hasn't really faded. If anything, the AI opportunity feels more real than ever, with firms like Nvidia and Microsoft (
NASDAQ:MSFT
) looking to take monetization efforts seriously.
Looking ahead, many companies may still be feeling a sense of FOMO (fear of missing out) if they don't have as much AI firepower as their peers. Though it's hard to tell when the next demand slump will be, investors should be prepared to ride out a potential bust that could hit at any time.
Indeed, it tends to get harder to stay on the expectations treadmill as the speed dial is cranked up!
Therefore, let's use
TipRanks' Comparison Tool to stack up three Strong-Buy-rated chip winners to see which has the most upside potential, according to analysts.
Nvidia (
NASDAQ:NVDA)
It seemed like Nvidia stock's early-August dip was the beginning of the end of the historic rally. Fast forward to today, though, and Nvidia stock is fresh off a new all-time high just shy of $500 per share. Buying the dip has continued to work for the AI chip king.
Although September is a historically awful month for stocks, analysts still think NVDA stock is a "Strong Buy" at current prices. In fact, 39 out of 40 analysts continue to recommend the stock as a "Buy." Though there's considerable downside risk in the event of a chip demand reversal, not having any skin in the game also carries the risk of missing out on further upside. For that reason, I have to be mildly bullish.
Despite more than tripling on a year-to-date basis, the company seems to have justified its run with profound quarterly beats. The latest (second) quarter wasn't rewarded with a massive post-earnings rally, but it was every bit as profound as the first quarter that sent Nvidia stock skyrocketing to new heights.
Second-quarter earnings per share came in at $2.70, topping consensus estimates of $2.09. Wedbush's
Daniel Ives is just one of many analysts who seem to think investors are getting the phenomenal quarter for free after a relatively muted post-earnings reaction.
I'm a value investor who hates chasing, but still, I'm inclined to agree with Ives. Nvidia has found a way to sprint, even with the expectations treadmill running in overdrive. For the second half of 2023, Ives sees another "rip higher" for Nvidia and the rest of tech.
What is the Price Target for NVDA Stock?
Nvidia stock is a Strong Buy, with 39 Buys and one Hold. The
average NVDA stock price target of $636.62 implies 35.3% upside potential.
Advanced Micro Devices (
NASDAQ:AMD)
AMD is the natural second choice for an investor seeking to profit from the AI chip rip at a sensible discount. Though AMD's best AI chip isn't quite at the level of Nvidia's best, the valuation likely already reflects such. Shares of AMD go for 26.5 times forward price-to-earnings versus Nvidia's 46.7 times.
The real upside to be had from AMD is if it can close the gap with Nvidia in the later stages of the AI race. It's no easy feat, especially since Nvidia seems to be running at full speed. In any case, I still view AMD as offering tremendous value for its offerings. As such, I'm staying bullish.
If a recession strikes, perhaps more customers will be inclined to go for AMD chips as they tend to be competitive in price. For instance, AMD's MI250 chip may be only 80% as fast as Nvidia's A100 chip, according to MosaicML, but if 80% is enough to get the job done at a much lower price of admission, AMD may have one thing over Nvidia should the economic soft landing end up harder than expected.
For now, it seems like everybody wants the absolute best at any cost. In due time, though, enterprises could shift toward AMD chips to power AI applications as they seek a better bang for their buck.
At writing, AMD stock is off around 30% from its all-time high. The company is standing in Nvidia's shadow, but probably not for long as the firm continues to innovate on the AI front. Further, CEO Lisa Su is a visionary leader who's already defied expectations over the past five years, with an incredible 300% gain over the timespan as it overtook Intel (
NASDAQ:INTC
) on the front of CPUs.
What is the Price Target for AMD Stock?
AMD stock is a Strong Buy, with 25 Buys and seven Holds. The
average AMD stock price target of $142.06 entails 30% upside potential.
Broadcom (
NASDAQ:AVGO)
Broadcom stock isn't as hot as the likes of Nvidia or AMD, but it still has growing skin in the AI race. The company's AI-related revenue could grow by 84% to $7 billion in the next fiscal year, according to management. Despite the hot AI growth on the horizon, AVGO stock sunk 5.5% last Friday after the release of some
underwhelming quarterly numbers that still managed to top estimates.
Indeed, many investors seem hungry for an Nvidia-like quarterly beat. That's an unrealistically high bar and one that few firms may be able to pass, even as the AI boom continues. Personally, I view the post-earnings flop as a buying opportunity produced by disappointed traders who went into the quarterly reveal with unrealistic expectations. Therefore, I'm staying bullish on the stock.
At writing, shares trade at just 19.2 times forward price-to-earnings, lower than the 21.5 times of the semiconductor industry average. With a
2.05% dividend yield and some great AI prospects of its own, the stock stands out as one of the GARP (growth at a reasonable price) names in a market that may very well see another valuation cooldown in September.
What is the Price Target for AVGO Stock?
Broadcom's a Strong Buy on Wall Street, with 15 Buys and two Holds assigned in the past three months. The
average AVGO stock price target of $965.38 implies 10.6% upside potential.
Conclusion
Thanks to AI, the chip rip could extend even further from here, and only time will be able to tell when the next semiconductor bust hits. Of the three stocks in this piece, investors expect the most upside from Nvidia. Indeed, the semiconductor winners could keep on winning the most for investors.
Disclosure
September is starting in classic, historically weak form. However, in an earlier piece, I provided readers with three reasons why September may actually offer a bullish surprise for investors. Even with the somewhat weak start, in
In today's video, I discuss Nvidia (NASDAQ: NVDA), Intel (NASDAQ: INTC), Advanced Micro Devices (NASDAQ: AMD), and how the current artificial intelligence (AI) craze is making a clear leader. Is it going to be short-lived victory? Check out the short video to learn more, consider
Shares of Intel (NASDAQ: INTC) have been on a tear lately, rising by as much as 37% year to date while leaving the S&P 500 index behind by a gap of 18.5%; the strong momentum that is being built is a refreshing change from the steady declines that got started in 2021.
The chip i
TSMC, the world's largest contract chipmaker, will decide this week whether to invest in chip designer Arm Holdings' blockbuster initial public offering (IPO), Chairman Mark Liu said on Wednesday.
Reuters
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24 minutes 53 seconds ago
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