What happened
Shares of Nvidia (NVDA -3.33%), Advanced Micro Devices (AMD -0.35%), and Skyworks Solutions (SWKS 1.83%) were all up big on Friday, rising 4.1%, 5.5%, and 4%, respectively, as of 1:54 p.m. EDT.
None of these companies have reported earnings yet, although AMD did announce worse-than-expected results in its PC division earlier this month.
The synchronous move highlighted a good day for semiconductor stocks generally. The semiconductor outperformance likely came from a combination of better-than-feared earnings from Apple (AAPL 1.27%) and Intel (INTC 0.64%) last night, as well as some better-than-feared economic data in the U.S. this morning.
So what
Last night, Apple beat analyst estimates for both revenue and earnings, and Intel delivered in-line revenue with a bottom-line beat.
Expectations were very low heading into each earnings report, since it had been well documented that both the PC and handset markets are in a sharp slowdown. Therefore, to see a result that wasn't as bad as feared is likely helping sentiment today.
Intel also said that the PC market remained difficult, and the company plans for units to be flat to slightly down next year, even with units down by the mid to high teens already in 2022. CEO Pat Gelsinger said the data center market was holding up better, although Intel was losing market share at the moment.
The 2023 outlook might perhaps indicate a bottom in PCs for some investors, because Gelsinger also said use of PCs is still above pre-pandemic levels. And that should mean a higher overall addressable market, despite the near-term correction.
And resilient data center investment bodes well for Nvidia and AMD, with AMD taking share from Intel in data center CPUs and Nvidia being the market leader in artificial intelligence focused GPUs.
Wireless chip company Skyworks is also likely benefiting from Apple's good results, as Skyworks generates just over half its revenue from the iPhone giant.
Semiconductor stocks are also very economically sensitive, and tend to respond to good or bad macroeconomic news. This morning, the Employment Cost Index released by the Bureau of Labor Statistics showed a slowing of private-sector wage growth, which was taken well by the markets.
Although the three-month seasonally adjusted rate of growth was 1.2% and the year-over-year growth was 5.2%, both figures marked a significant slowdown from June's 1.6% and 5.7% growth figures, respectively.
Wage inflation had been one of the main sources of overall core services inflation, which in turn affects the path of Fed rate increases. So these slowing numbers show that this summer's rapid rate hikes could be having their intended effect. That means the Federal Reserve might not have to go materially higher than their forecast in terms of interest rates to slow inflation to its target. That would be good news for the economy overall.
Meanwhile, consumer spending metrics from September also came in higher than expected, despite worries over inflation and a deceleration in wages. Solid consumer spending along with falling inflation would be a Goldilocks scenario (not too hot and not too cold) for the Fed and the economy.
Now what
It's quite possible that these semiconductor stocks will continue to rise, even if revenue and earnings results come in poorly over the next couple of quarters. After all, these stocks began to decline even while earnings were good earlier this year, in anticipation of a downturn brought on by inflation and the Fed's interest rate hikes.
Now that a downturn is here, especially in the PC market, investors might be sensing a bottom and looking ahead to a recovery. The lower wage-inflation figures are likely helping to spur optimism that the Fed might soon be done with its restrictive interest rate increases.
There is still a high degree of uncertainty in the outlook, since a number of factors, including geopolitical issues, could continue to throw the economy surprises. But today's data was certainly encouraging.
With shares of Nvidia and AMD down between 55% and 60% on the year, even after the recent bounce, and with Skyworks down 45%, it's no surprise to see them being bought heavily on the first signs of a potential slowdown in inflation.
