SMH and SMHX ETFs in the spotlight; Broadcom earnings next

The VanEck Semiconductor ETF (SMH) will be on the spotlight as traders assess the impact of Wednesday’s Nvidia earnings. The ETF, which tracks the biggest semiconductor companies, was trading at $240, down by over 14% from its highest point this year. 

Similarly, the new VanEck Fabless Semiconductor ETF (SMHX) dropped on its first trading day on Wednesday.

Nvidia’s strong results

The SMH and SMHX ETFs will be in focus as investors assess the latest Nvidia earnings and its impact on the market.

Nvidia said that its quarterly revenue more than doubled last quarter, hitting $30 billion. This revenue was 15% higher than the $26 billion it made in the first quarter and 122% higher than what it made n the same period in 2023.

These results mean that the company is still seeing unprecedented demand from firms building AI data models. Its profitability has also exploded as the compay’s earnings per share jumped by 168% YoY to $0.67. 

Most importantly, the company has now focused on returning funds to shareholders. It has already returned $15.4 billion to shareholders in the first half of the year and still had $7.5 billion in its authorization. Nvidia decided to launch an additional $50 billion share repurchase program. 

The company believes that it has more room to grow this year as its revenue is expected to be $32 billion in the third quarter. Analysts now expect that Nvidia’s annual revenue will surge to over $121 billion, the highest point on record. It will then jump to over $168 billion next year.

Still, despite the strong numbers, Nvidia stock price crashed by almost 7% in the extended hours. This retreat happened for two main reasons. First, analysts now believe that Nvidia’s growth will start slowing in the coming years as the AI industry matures.

Second, Nvidia share price dipped because the strong results were priced in by market participants. Most people anticipated the company to publish strong financial results as it has done in the past. 

Nvidia is an important part of the SMH and SMHX ETFs. It is the biggest constituent of the $22.8 billion SMH fund, which holds over 39 million shares valued at over $5.1 billion. It is also the biggest constituent of the SMHX ETF, which holds just 1,049 shares valued at $134,587. 

Most semiconductor stocks dropped after the Nvidia earnings. Some of the top laggards were the likes of Taiwan Semiconductor Manufacturing (TSM), AMD, and Intel fell by over 3%.

Broadcom earnings next

Most semiconductor companies have published their financial results in the past few weeks. Intel, which used to be a dominant player in the semi industry, reported weak financial results as its revenue dropped by 1% to $12.8 billion. The company also issued a weak forward guidance, in which its revenue will be between $12.5 billion and $13.5 billion. 

AMD, which is widely seen as the one with the most potential to challenge Nvidia, has crashed by over 35% from its highest point this year. 

Additionally, many companies dealing with analogue chips like Texas Instruments and Applied Materials have also crashed as the industry slows down. 

The next most important report will come out next week when Broadcom (AVGO) publishes its quarterly financial results.

Read more: Broadcom stock: August 28 and Sep 5 are key dates for AVGO

Broadcom is the third-biggest company in the SMH ETF, which holds 11.9 billion shares worth over $1.9 billion. It is the second-biggest constituent of the SMHX ETF, which holds 534 shares valued at over $86,000.

Broadcom is a leading company that builds diverse solutions in the tech industry. It is a top partner of leading companies like Apple, which uses its networking chips. Over the years, its market cap has jumped to over $751 billion, and I believe that it could get to $1 trillion in the next few years.

The company has diversified its business in the past decade. In addition to being a leading semiconductor company, it is also a big software firm because of its ownership of companies like VMware, CA Technologies, and Symantec.

Therefore, analysts expect that Broadcom’s revenue will come in at $12.96 billion, higher than the $12.49 billion it made in the last quarter. 20 of them have revised their EPS upwards in the past 90 days. 

SMH ETF analysis

The weekly chart shows that the VanEck Semiconductor ETF has retreated from the year-to-date high of $283 to the current $240. Most notably, the stock formed a shooting star candlestick pattern last week. In most cases, this is one of the most bearish patterns in the market.

On the positive side, the fund remains above the 50-week Exponential Moving Average (EMA), meaning that bulls are in control. Therefore, the stock will likely have more volatility in the near term and then resume the bullish trend.