In what many analysts are calling the latest sign that the recession has ended, Intel surprised Wall Street on Friday by raising its third quarter revenue outlook above current consensus analyst estimates. Citing stronger-than-expected demand for microprocessors and chipsets, the Santa Clara, California-based chipmaker revised its third quarter revenue forecast to $9.0 billion, up from a previous estimate of $8.5 billion.
While this development is obviously good news for Intel shareholders, many analysts expect that it may signal a strengthening of the broad technology sector. Intel’s announcement came only a day after Dell shares surged on news of better-than-expected second quarter earnings, giving investors hope that the technology sector may be pulling out of a severe prolonged downturn.
But a recovery in the tech sector is no sure thing. Consumers are beginning to spend again on gadgets, and increased demand from Europe, likely the result of the Chinese government’s stimulus plans, is boosting technology sector sales. As confidence continues to climb, consumers in the U.S. and overseas are beginning to once again purchase big ticket items, giving a boost to a sector that was decimated as households cut out many discretionary purchases during the recent economic downturn.
Still, concerns linger about the staying power of the recent mini-bull market run, as the market has apparently priced in a fairly robust rebound, leaving risk on the downside if the recovery stalls. The next step taken by the tech sector, whether it be a continued improvement or a step backwards, will likely be driven by business spending. During the downturn, many businesses elected to hold on to old computer and technology infrastructure as long as possible, grinding sales of computer chips and semiconductors to a halt.
ETF Technology Plays
There are ETF options covering just about every corner of the technology sector, from broad-based funds to funds focusing specifically on broadband, software, and nanotechnology (see the ETFdb Technology Category for a complete list of technology ETFs). Three ETFs worth considering for investors bullish on the technology sector:
- SPDR Select Sector Technology Fund (XLK): One of nine “select sector” sub-indexes of the S&P 500, XLK is comprised of companies in the information technology (85%) and telecommunications services (15%) industries. This ETF has gained more than 30% in 2009 and has an expense ratio of only 0.21%.
- iShares S&P Global Technology Fund (IXN): Whereas XLK provides exposure to U.S-listed companies, this ETF offers more global exposure, holding equities in a dozen countries. The U.S. (73%), Japan (19%), and Taiwan (4%) account for the largest weightings.
- iShares North American Technology Semiconductor Index Fund (IGW): For investors particularly bullish on the prospects for semiconductor producers, IGW offers targeted exposure while still providing diversification across several different companies. Intel (9%), Texas Instruments (9%), and Applied Materials (8%) account for the largest holdings in this ETF.
Disclosure: No positions at time of writing.