Why Qualcomm, Advanced Micro Devices and Micron Technology have jumped today


What happened

Shares of chipmakers Qualcomm (NASDAQ: QCOM), Advanced micro-systems (NASDAQ: AMD), and Micronic Technology (NASDAQ: MU) all rose sharply on Tuesday, with stocks hitting 5.3%, 4.8% and 5.6%, respectively, at their daily highs. At 2:45 a.m. ET, all were only slightly below those levels.

The tech industry is generally recovering from a recent downturn, based on the dual fear of the omicron variant and higher interest rates. However, these concerns seem to be fading today. In addition, Micron in particular has been called a “first choice” by a prominent semiconductor analyst.

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So what

Lately, the tech industry has been hammered. Despite the emergence of the omicron variant of the coronavirus, Federal Reserve officials have always been hawkish in recent congressional hearings. If the tightening of financial conditions proves premature, it could slow growth or even trigger a recession. The last time the Federal Reserve made such a mistake was in 2018, when it hiked interest rates just as the US-China trade war began. The result was a fairly large drop in demand for semiconductors in late 2018 and early 2019.

However, over the weekend, Dr Anthony Fauci said the first data indicated that omicron may cause less severe disease – with the caveat that more data was needed to confirm that fact. And on Tuesday, more good news arrived when the drugmaker GlaxoSmithKline said his COVID-19 antibody treatment appeared to be effective against omicron in early testing.

Although they have a long-term growth quality, semiconductors are also somewhat cyclical, so lower concerns than the omicron can lead to expectations of stronger economic growth, which is good for companies. semiconductor stocks.

In addition, Micron has been named one of the Citigroupsemiconductor “top picks” for 2022. Micron sold out over the summer as investors wary of a possible slowdown in demand for PC memory due to shortages other chips. In addition, there were concerns that companies had placed duplicate orders and stockpiled during the strong first half of the year.

However, Citigroup’s Christopher Danely said inventories could remain high as semiconductor companies turned to long-term deals, and most are firmly booked until 2022. Micron also said during his September conference call that its customers may choose to hold higher inventory levels. than they were before the pandemic, as the costs of a higher inventory are lower than the lost sales suffered due to shortages this year.

Additionally, DRAM demand in particular, which is where Micron derives most of its revenue, has just been revised up by research firm Trendforce as demand for laptops has grown better. provided that. Micron is perhaps the most sensitive to booms and downturns, so continued strength in demand next year would make it one of the biggest winners in the space.

Now what

Semiconductors are a very attractive industry, as they are influenced by megatrends in technology, but generally trade at much better valuations than their multi-multiple software counterparts. Many also pay dividends and stock buybacks, which most software stocks don’t get. The three aforementioned companies are buying back their shares, and Qualcomm and Micron are currently paying dividends.

So if the technology growth fueled by the pandemic continues and economic growth remains resilient to omicron, semi-financial stocks like Qualcomm, Advanced Micro Devices, and Micron all look attractive for next year.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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