The semiconductor industry in the U.S. has been in the news lately, as multiple events across the spectrum drive stocks in the sector.

The highlight of last week was the improving state of talks between U.S. and China, as President Trump tweeted that he might remove the ban on the supply of U.S. tech to Chinese telecom gear maker ZTE. In a period of increased tensions between the world’s two largest countries relating to trade, this change of rhetoric was a welcome move by the markets.

Following this, Chinese regulators restarted their review of Qualcomm’s (NASDAQ: QCOM) application to acquire Dutch firm NXP (NASDAQ: NXPI), which they previously regarded as damaging for their domestic tech firms.

The $44 billion deal announced in October 2016 received antitrust clearance from eight of the nine required government regulatory bodies and China’s approval is the last hurdle it needs to overcome. While Qualcomm closed May 14, 2018 2.7% higher, NXP ended up rallying 11.9% following the report. Per the TipRanks analyst consensus, Qualcomm as well as NXP currently float a Moderate Buy rating.

TipRanks highlights that out of 13 analysts polled in the last 3 months, 6 are bullish on QCOM, 6 are neutral while just 1 is bearish on the stock.

Moreover, analysts covering the sector are quite bullish on the expected performance of the semiconductor space. Per an investors.com article, Citi analyst Atif Malik forecast 2019 wafer fabrication equipment spending of $61 billion compared with the consensus target of $58 billion at Wall Street.

Moving on to other players in the headlines, Advanced Micro Devices (NASDAQ: AMD) received a bullish report from JP Morgan. "Ahead of this week’s summit, we recommend investors purchase AMD June 13 strike calls for $0.22, indicatively ($11.95 reference price), taking advantage of AMD’s two year low implied volatility," states a JPMorgan report covered by Barron’s.

The primary reason for JP Morgan being bullish on the stock is its historical correlation to the three-day blockchain summit in New York that kicked off on May 14. On average, shares of AMD have rallied 15% following the summit, owing to the company’s exposure to the space, with its chips being used for cryptocurrency mining.

Another player that is likely to benefit from the current make of the industry is Nvidia Corp (NASDAQ: NVDA). From high end gaming processing units to Artificial Intelligence and self driving vehicles, Nvidia has its hands all over the space.

The company recently reported strong first quarter results and topped Wall Street expectations,with revenue touching $3.2 billion and Non-GAAP EPS of $2.05. The highlight was Nvidia’s 71% year on year increase in data center revenue and 68% increase in gaming revenue, which watered down the negative comments about the crypto space from the company's management.

Although the shares of Nvidia took a hit following the company’s forecast that crypto mining related demand might wane, increased expected demand in its data center and other segments mentioned above is expected to continue to drive the stock higher. “While we acknowledge the valuation is high compared to the rest of the semi group, we can't find another chip company where revenue has doubled in three years and earnings have grown ~5x, all organically” writes top-rated Needham analyst Rajvindra Gill. He ramped up his price target from $300 to $325 on May 11. Given that NVDA shares are currently at $246 this suggests big upside potential of 32%.

All in all, the semiconductor space has managed to steal investors’ interest owing to a multitude of factors, spanning from political drivers to micro factors. It seems like an appealing option at the moment, given the deescalating trade fears between Washington and Beijing, coupled with attractive industry related factors such as increased demand and a possible demand supply gap playing in the sector’s favor. 

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