U.S. stock indexes have been bothered by escalating trade worries for far too long now. That was not enough to stop semiconductor giants Qualcomm Inc. (QCOM, Financial) and Advanced Micro Devices Inc.'s (AMD, Financial) stock prices from moving north, however, as strong fundamentals and micro-level factors led the Street to post bullish notes on the two chipmakers.
Qualcomm
Shares of Qualcomm have been witnessing a volatile yet northbound movement as several factors pertaining to the stock play in its favor.
Moreover, the telecom equipment company recently received a bullish note from Cowen & Co. analyst Matthew Ramsay, who upgraded the stock to outperform from market perform and raised the price target to $80 from $64.
Qualcomm had been trying to acquire Dutch automotive chipmaker NXP Semiconductors (NXPI, Financial) for over a year before finally throwing in the towel after not receiving approval from China. As a result of the failed acquisition attempt, the company announced a $30 billion stock buyback program.
For the most recent quarter, the chipmaker reported $1.01 in earnings per share, compared with 71 cents expected by Reuters analysts. Revenue came in at $5.6 billion, beating expectations of $5.19 billion.
Ramsey’s earnings per share estimates for Qualcomm increased 20% to $5.93 as the analyst accounted for planned spending reductions to the tune of $1 billion and potential royalty dispute resolutions with Apple (AAPL) and Huawei. The stock currently has a forward price-earnings ratio of 14.47 as compared to the industry median of 19.05, indicating an attractive valuation for the company. It is up nearly 13.2% in the past month alone.
Advanced Micro Devices
Advanced Micro Devices shares are hot this year as it is the top-performing stock in S&P 500’s Semiconductor Index. Like Qualcomm, this stock has also been rallying lately as a multitude of factors plays in its favor.
The company also received a bullish note from Cowen’s Ramsay. The analyst hiked his price target from $21 to $25 after Intel Corp. (INTC, Financial) announced a delay in its 10-nonometer chip.
Although the impact of sales from AMD’s 7-nanometer products will take a few quarters to significantly reflect on the company’s balance sheet, the long-term outlook remains strong. Moreover, given strong expected demand for the new product offering, the chipmaker will now have a relatively diversified product portfolio and will see a reduction in dependence on crypto and GPU gaming-related sales.
From a fundamental perspective, the company has fared quite well. It reported a 53% year-over-year increase in revenues to $1.8 billion, while its adjusted profit per share of 14 cents was the highest in seven years.
Moreover, management seems to be quite happy with the current state of operations.
“Several years ago, we made important decisions around our CPU and GPU roadmaps to drive leadership at the 7-nanometer node,” CEO Lisa Su said. “We now have line of sight to those products coming to market and we see incredible opportunities ahead based on the competitive positioning and customer interest in our upcoming 7-nanometer products.”Â
Since Advanced Micro has seen an upward march at Intel’s expense, it makes more sense to compare the price-sales ratios of the two stocks, which are 3.31 and 3.58 respectively, thus indicating a relatively fair valuation for AMD currently. Moreover, the stock is up nearly 17% in the past month to $19.27, which is a significant feat considering the stock was trading at $2 levels in February 2016.
Conclusion
All told, both stocks have a strong outlook given micro-level factors. Although concerns surrounding President Trump’s trade war with China is a potential downside for semiconductor manufacturers, the Street does not seem to be too concerned about it.
Disclosure: I do not own any stocks mentioned.
