Semiconductors could start to recover in October, BofA says

Semiconductor stocks have been volatile in recent weeks, and while some on Wall Street believe the turbulence could last until the election, Bank of America believes a recovery could come before then.

“Volatility could persist during NVDA earnings and “Then, September is historically the worst month for SOX, down 70% of the time. The US election and ongoing geopolitical tensions add an additional layer of uncertainty,” analyst Vivek Arya wrote in a note to investors. “However, if history is any guide, SOX could recover from October, with Q4 and Q1 being the two strongest quarters for semi-traded stock performance (7%-10.5% average return, more than 400 basis points ahead of SPX, since 2010).”

Nvidia is scheduled to report quarterly results after the close of trading on August 28. Analysts are widely expected to earn $0.64 per share on $28.54 billion in revenue.

Arya added that the semiconductor industry is only in the fourth quarter of a bull cycle, and that the Philadelphia Semiconductor Index (SOX) has returned 28%. Previous bull cycles lasted 10 quarters and generated an average return of 67% for the index.

The firm said that if the chip industry returns to its baseline recovery scenario, then Nvidia, Broadcom (NASDAQ:AVGO) and KLA Corp. (KLAC) would likely be the three stocks that would outperform. If volatility remains elevated and demand declines, Broadcom, Cadence Design Systems (CDNS) and Synopsys (SNPS) would likely outperform, the research firm said.

On the other hand, if there is a resurgence, then stocks like Arm (NASDAQ:ARM), Micron (MU) and On Semiconductor (ON) are expected to outperform, Arya said.

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