SMH, Semiconductor ETFs: Will Broadcom Save Them?

Nvidia stock is again in bear territory, pulling down semiconductor ETFs and the broader market while investors fret about September, the worst month historically for equities. Can anything save chip stocks and cure the overall market malaise?  

NVDA has fallen 20% from its all-time high set in July, while the semiconductor proxy exchange-traded fund, the VanEck Semiconductor ETF (SMH) is down 18%. 

This decline marks the second time in one month that the largest semiconductor stock and tech sector bellwether produced such a bearish price drop. 

The broader market is down more than 2% since its July high mark, as measured by the SPDR S&P 500 ETF Trust (SPY). 

The next best shot for an injection of positivity may come from this week’s earnings call for Broadcom, Inc (AVGO), a top holding in SMH, as well as the popular iShares Semiconductor ETF (SOXX) and many other tech and U.S. large-cap growth ETFs. 

The semiconductor infrastructure giant will report its Q3 earnings after the market closes Thursday, and as with Nvidia’s quarterly reports, analysts will watch for Broadcom to beat expectations while listening for clues about the growth outlook for artificial intelligence. 

Here’s a breakdown of what to look for in Broadcom’s earnings report: 

• AI revenue growth: Broadcom has been a major player in the AI chip market. Investors will be eager to hear updates on the company's AI-related revenue growth and outlook. 
• Data center business: Broadcom's data center business is another key driver of growth. Investors will be interested in hearing about the company's performance in this segment and any updates on major contracts or partnerships. 
• Networking and infrastructure: Broadcom is a leader in networking and infrastructure solutions. Investors will be looking for updates on the company's performance in these areas, especially as the demand for digital infrastructure continues to grow. 
• Guidance for Q4 and beyond: Investors will be paying close attention to Broadcom's guidance for the fourth quarter and full year. This will provide insights into the company's expectations for future growth and profitability. 
• Competitive landscape: Broadcom operates in a competitive market. Investors will be interested in hearing about the company's competitive position and any challenges it may be facing. 

Broadcom vs Nvidia

Broadcom (AVGO) and Nvidia (NVDA) are both major players in the semiconductor industry, but they operate in different segments. 

• Broadcom: Primarily focuses on semiconductor components for networking, storage, and wireless devices. Their products are essential for building and connecting digital infrastructure. 
• Nvidia: Specializes in graphics processing units (GPUs), which are used for rendering graphics, gaming, and increasingly, artificial intelligence (AI) applications. 

Key Differences  

• Product focus: Broadcom's products are more diversified across various semiconductor segments, while Nvidia is heavily focused on GPUs. 
• Market positioning: Nvidia has a strong market position in the gaming and AI markets, while Broadcom's strength lies in networking and infrastructure solutions. 
• Business model: Broadcom's revenue is more diversified across various industries, while Nvidia's revenue depends heavily on the gaming and AI markets. 
• AVGO vs NVDA stock performance: Both semiconductor stocks have crushed the broader market, but NVDA’s 120% gain in 2024 dwarfs AVGO’s 37% year-to-date gain. For reference, the S&P 500 (SPY) has gained 16% this year. 

While both companies are semiconductor giants, their distinct product focus and market positioning differentiate them within the industry. The greatest impacts on NVDA and AVGO stock performance for the remainder of 2024 will likely be driven by AI adoption, market sentiment, and global economic conditions.