What happened
Many leading semiconductor companies saw their stock prices soar in January 2023, according to data from S&P Global Market Intelligence. For example, Qualcomm (QCOM -2.53%) shares gained 19.7%, while Micron Technology (MU -4.47%) stock rose by 23.5%. Taiwan Semiconductor (TSM -0.55%) jumped even higher, closing the month's trading 25% higher.
By comparison, the S&P 500 (^GSPC -0.58%) market index increased by 4.6% in the same 31-day period. That performance was widely hailed as a game-changing jump, but these semiconductor giants posted much stronger gains.
So what
Here are some of the most significant highlights from a long list of market-moving good tidings in January.
The chip sector rally started with memory chip giant Micron landing on analyst firm Rosenblatt's list of top investment ideas for 2023. The firm expects a particularly strong business performance in the second half of the year but noted that it was time to "start playing offense" while share prices were low.
Taiwan Semiconductor provided the next surge, with a mixed fourth-quarter earnings report on Jan. 12. The chip foundry's earnings of $1.82 per share came in just above the Street's consensus estimate of $1.77. Revenues of $19.9 billion fell just short of your average analyst's $20.6 billion target.
That might not sound like much of a share price catalyst, but investors were bracing for something worse. In the end, it's hard to complain about a 43% year-over-year increase in sales and 78% higher earnings per share during what's supposed to be a macroeconomic crisis.
Qualcomm took the baton for the next surge. Analyst firm Barclays upgraded Qualcomm from "equal weight" to "overweight" on Jan. 23, arguing that chip giants with exposure to data center networking, PC systems, and smartphone handsets are poised to outperform other subsectors in 2023.
Now what
All three of these chip giants underperformed the S&P 500 by a wide margin in 2022, priming the pump for a sharply positive correction:
I'm sure you know value investing godfather Benjamin Graham's timeless observation that the stock market is a voting machine in the short run, but a weighing machine over the long haul.
Semiconductor stocks were unpopular last year as the sector battled several macroeconomic headwinds along with its own supply-side shortages. Investors are refocusing on fundamental business strengths now that the economic ducks are getting back in a row.
It would be much harder to make money if the stock market didn't go through these flawed and fair valuation cycles. The trick is to recognize a great company's stock trading far below its fair value, and to separate it from deeply damaged businesses whose stocks are down for good reasons.
The weighing machine is taking over from the voting machine as we speak, and that's good news for investors in these world-class companies. As an example, Qualcomm reported first-quarter results on Feb. 2, leaving analyst estimates far behind on both the top and bottom lines. That stock soared as much as 5.3% higher the next day.
Micron, Qualcomm, and Taiwan Semi are global leaders in their chosen fields, and their stocks still look like great buys even after January's respectable price jumps.
