|  Over the past few weeks, the stock market has whipsawed between crashing and soaring. It’s been quite a rollercoaster ride for investors. Yet, through it all, we have remained resolutely bullish.
And it all has to do with earnings.
Why? Well, because above all else, earnings matter the most when it comes to a stock’s price. When earnings are rising, stocks rise, too. And when earnings are falling, so are stocks.
This correlation is very strong; and right now – despite fears about an incoming recession – earnings are still rising.
In fact, about 90% of firms in the S&P 500 have reported second-quarter earnings so far. The average earnings growth rate for those companies is about 9%. That’s one of the S&P’s best earnings growth rates since 2021.
And semiconductor stocks are seeing particularly exceptional earnings growth right now.
Last night, semi firm Applied Materials (AMAT) reported that earnings rose 12% this past quarter. Advanced Micro Devices (AMD) saw 19% earnings growth in Q2, while KLA Corporation (KLAC) reported 22% growth. Peer Qualcomm (QCOM) achieved 25% earnings growth, and Lam Research (LRCX ) saw a whopping 36% rise.
Across the board, semiconductor stocks are reporting huge earnings growth right now – thanks to the powerful and enduring AI Boom. AI Spending Frenzy Is a Boon for Stocks Right now, tech titans like Meta (META), Microsoft (MSFT), Amazon (AMZN), and Alphabet (GOOGL) are going all-in on the AI Boom. They are spending billions of dollars to create world-class AI models. That, of course, starts with developing the infrastructure necessary to create such AI models – things like AI data centers, chips, networking, and more.
In other words, we are currently in the midst of a multi-billion-dollar AI infrastructure investment frenzy.
The investment frenzy is translating into supercharged demand for AI semiconductor companies and, in turn, supercharged profit growth.
That’s why, in our model portfolios, we used last week’s selloff to buy the dip in a few high-quality AI semiconductor stocks.
Now it looks like that was the right move.
The S&P 500 has rallied about 7% off its lows from last Monday. That is a big gain in just 10 days. But in fact, it still pales in comparison to some of the gains we’ve seen across the AI semiconductor sector.
AI server supplier Super Micro (SMCI), for example, has gained more than 30% off the lows from last Monday. Celestica (CLS) has risen by more than 35%. Dell (DELL) is up about 25% off last week’s lows. ONTO Innovation (ONTO) is up around 35%, while Vertiv (VRT) is up about 30%.
AI semiconductor stocks have broadly soared from last week’s lows – and we think this big rally can continue.
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The Final Word on Earnings Over the years, we’ve gleaned many insights from our experience in the stock market. But one has become a core mantra – as go earnings, so go stocks.
Of course, if earnings go up, stocks do, too. Looking across the entire S&P 500 Semiconductor and Semiconductor Equipment industry, earnings are expected to rise by more than 70% this quarter and nearly 50% the next. Not to mention, earnings are expected to rise nearly 40% in 2025 – and another 15% in 2026.
In other words, according to estimates, semiconductor companies are in the early innings of a multi-year earnings boom.
And that should lead to a multi-year stock boom, too.
We would continue to buy AI semi stocks on weakness ahead of this boom. But they’re not the only stocks on our short list…
Learn about the picks we’re most bullish on right now.
Sincerely,
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