NEW YORK, Feb 25 — Signs of a resilient US economy are boosting the appeal of semiconductor stocks, even as worries over the Federal Reserve’s monetary policy tightening weigh on the sector along with the broader market.

The Philadelphia SE Semiconductor index is up about 16 per cent so far this year, dwarfing the 3 per cent year-to-date gain for the S&P 500 and the Nasdaq Composite’s 8.5 per cent rise.

Semiconductors were among the worst hit areas in last year’s market rout, which saw the SOX index lose 36 per cent, fuelled by worries of an imminent recession.

They have been standouts in the market’s 2023 rebound, supported in part by evidence that the US economy continues to be robust even after the Federal Reserve unleashed its most aggressive monetary policy tightening in decades to fight inflation.

With semiconductors a key component in countless products, some investors are betting economic strength could help the shares outperform.

Despite last year’s recession fears, the market now believes "the economy is going to continue to chug along,” said King Lip, chief strategist at Baker Avenue Wealth Management, whose firm owns shares of Nvidia and On Semiconductor. "If that’s the case, then I think semiconductors can do very well.”

Of course, economic strength has been a double-edged sword for stocks lately. Semiconductor shares have pulled back recently along with broader markets on worries of a "no landing” economic scenario in which strong growth keeps inflation elevated and prompts the Fed to raise interest rates higher for longer. More insight into the state of the economy comes next week with a raft of data due, including consumer confidence and durable goods.

Still, virtually all of the 30-component Philadelphia semis index have outperformed the broader market this year, led by heavyweight Nvidia’s roughly 60 per cent year-to-date gain.

The chip designer’s shares rose 14 per cent on Thursday after it forecast first-quarter revenue above estimates as its CEO said use of its chips to power artificial intelligence services had "gone through the roof in the last 60 days.”

The rally in Nvidia’s shares has catapulted its market value to US$570 billion, making it the sixth most valuable S&P 500 company after electric automaker Tesla. — Reuters