Semiconductor stocks rallied on Monday, boosted by the latest sign of easing tensions between the U.S. and China on the trade front.
Commerce Secretary Wilbur Ross said the U.S. would extend a set of exemptions that had prevented some companies from doing business with China’s Huawei Technologies Co., a gesture that was seen as encouraging a deal between the two countries. Chipmakers are heavily correlated with the trade issue, given China is both a major source of revenue for the group and a key region for their supply chains. Many chipmakers count Huawei as one of their most important customers.
The Philadelphia Semiconductor Index rose as much as 2.7% on Monday. Among notable movers, Micron Technology Inc. gained 3.4%. The stock gets about 13% of its revenue from Huawei, according to supply-chain data compiled by Bloomberg.
Ross’ comments added to a generally positive tone for the sector, which is up more than 16% from a low at the end of May.
Raymond James on Monday wrote that it was “dipping our toes back into the water,” a reference to becoming more bullish on the industry. Analyst Chris Caso wrote that while he continued to have concerns over the macroeconomic environment, estimates and expectations had both been reduced, limiting the amount of risk.
“We’re now more convinced that current estimates reflect semi shipments below end market consumption, which allows for mean reversion higher if demand stabilizes, and some downside protection even if demand weakens further,” he wrote to clients.
As part of his call on the sector, he upgraded ON Semiconductor to strong buy and started coverage on NXP Semiconductors with an outperform rating.
Shares of ON rose as much as 7.1% while NXP gained as much as 2.9%.
One of the biggest gainers of the day was Nvidia Corp., which spiked 6.8% after Microsoft Corp. said it would use the company’s graphics chip for its Minecraft video game.
Nvidia was on track for its biggest two-day percentage gain since May 2017, with the day’s advance building on Friday’s post-earnings rally of 7.3%.