What happened
Many market-leading semiconductor companies saw their share prices rise on Thursday. Memory-chip maker Micron Technology (MU -0.60%) posted a maximum gain of 6.5%, sandwiched between communications-chip designer Skyworks Solutions (SWKS 1.83%) at 6.3% and high-performance processor specialist Advanced Micro Devices (AMD -0.35%) at 6.7%.
None of these companies had any game-changing news of their own today. Instead, they reacted to the positive industry tidings that spread from chip-giant Qualcomm's (QCOM 1.41%) analyst-stumping earnings report.
So what
Both AMD and Skyworks will report their latest quarterly results next week. For them, Qualcomm's business update served as a preview of what to expect.
Micron is a different story, due to the company's offbeat fiscal schedule. The memory expert reported second-quarter results substantially ahead of analyst expectations at the end of March and won't publish another report until the tail end of June or early July. Still, Qualcomm's take on the semiconductor sector is highly relevant to Micron's business prospects, especially where the two companies have overlapping interests in the data center and mobile industries.
So what did Qualcomm have to say about the general health of the chip sector?
Image source: Getty Images.
First, top-line sales rose 41% year over year to $11.2 billion. Adjusted earnings jumped 68% higher, landing at $3.21 per diluted share. Your average analyst would have settled for earnings of roughly $3.01 per share on revenue near $10.4 billion.
In the earnings call, CEO Cristiano Amon pointed out that the computing power in modern smartphones is skyrocketing. Some of the extra number-crunching and storage muscle is needed for connecting to 5G wireless networks, but smartphones in the high-end and mid-range market cohorts are also adding new features that require massive computing resources. That's music to the ears of Skyworks and Micron investors.
AMD shareholders paid more attention to Qualcomm's view of the artificial intelligence and high-performance processing markets. Amon pointed to this exact corner of the semiconductor market as the fastest-growing target area for Qualcomm. AMD owners ate up that comment.
Now what
Despite the updraft from Qualcomm's robust report, Skyworks and AMD are approaching next week's earnings reports on a downtrend. Both stocks are underperforming the broader stock market in 2022:
Even though the three stocks on my list are trending in the same direction, the stock market actually treats them very differently from a long-term perspective. Micron always looks undervalued, currently trading at just 8.4 times trailing earnings. AMD has a permanent ticket to Wall Street's nosebleed section, trading today at 33 times earnings and 46 times free cash flow. Between these extremes, you'll find Skyworks more modestly valued at 14 times earnings.
In order to support their respective valuations, AMD still has a lot to prove in next week's first-quarter report, while Skyworks can get away with a less spectacular report. Micron's stock will continue to react to chip-industry news posted by other companies for the next couple of months.
The bigger picture was not really changed by Qualcomm's report, of course. Management didn't say anything about the ongoing manufacturing shortage across the chip industry. The commentary about smartphone-processor content and the popularity of data center-based artificial-intelligence processing only underscored some well-known macro trends.
Still, it's good to see a leading name in the chip sector stepping up to the plate and delivering analyst-stumping numbers across the board. The proof is in the pudding, and Qualcomm was able to back up its bullish sector analysis with some creamy financial results. Now it's up to AMD and Skyworks to follow through with robust reports next week.
