Early earnings blowouts point higher for semiconductors

We've now had a blowout earnings report from $MU, in which EPS beat by 11%, sales by 3%, and guidance by 24%(!). We also got guidance from XLNX yesterday that suggested its revenue will be about 5% higher than previously expected, above the high end of its previous range. This suggests that analysts are underestimating the sector's performance as we head into Q2 earnings season in mid-July. It also suggests that semiconductors will have far more forward visibility than most sectors, with 100% of companies so far providing guidance.

Semiconductors usually are one of the strongest sectors on earnings, beating estimates at a much higher-than-average rate. Amidst the pandemic, there's been strong demand for mobile, home computing, and datacenter usage due to people working from home, so the sector has performed well. Granted, these stocks mostly aren't cheap; but investors are paying premiums for a reason. I expect the sector will outperform through the end of July.

Those who've been following my posts know that my positioning is mostly defensive: I'm heavy on utilities and consumer staples. Semiconductors have the virtue of being a bit defensive, in that they're relatively insulated against pandemic impact, while also having extraordinarily high growth potential. Historically, SOXX has considerably outperformed the S&P 500.