The benchmark PHLX Index (SOX) started the week at 3,211, down 1.47% over the prior week. The SOX is down 18.63% on a year-to-date basis.
Semiconductors continued to slide last week, and unimpressed Wall Street analysts say it will get worse before it gets better for big semiconductor companies.
Consider Morgan Stanley, which just downgraded Intel (INTC) to “underperform” from “equal weight”, in what’s best described as a trading strategy shift by the investment bank. Morgan also slashed Intel’s price target from $55 to $47.
According to Morgan Stanley analyst Joseph Moore, Intel was curbed due to a “rebalancing” move by the financial firm to “shift away from inexpensive cyclical stocks, at the margin.”
“Downgrades of value stocks such as Intel and Qorvo (QRVO) will let us focus on more actionable situations that offer relatively more attractive risk-reward going forward,” Moore said.
Moore noted that Morgan Stanley would like to see Intel as a value stock, with optionality from a turnaround in the core business.
“But the reality is that fixed costs create a more ‘all-or-nothing’ situation where the company is going to need to succeed in these new businesses—and still turn around their core business—or be looking at long-term gross margin and cash-flow degradation,” Moore added.
Certainly, Intel isn’t the only semiconductor firm that’s raising eyebrows on Wall Street. TheStreet’s market experts are also taking a closer look at these chip industry stocks.
Advanced Micro Devices (AMD) $107.25. 5-day Performance (-) 1.07%.
Real Money Columnist Timothy Collins sees one major semiconductor manufacturer as being “stuck in a rut.
Yet he likes the company, anyway.
“I do like Advanced Micro Devices (AMD) as a range bound play here,” Collins wrote recently on Real Money. That’s because “The board [has] approved a new $8 billion repurchase agreement. If the market moves higher from here, I doubt they will get aggressive with a buy back immediately. However, if we reverse lower, I wouldn't be surprised to see AMD scoop up some of its own shares”
The challenge is to figure out where the support and resistance bands are for the stock.
According to TheStreet’s Eric Reed, a resistance band is the upper level that you expect out of a stock’s price, based on the asset’s price history over time.
“Similarly with support bands, you look at the asset’s price history over time,” Reed said. “For example, say a given stock has approached $10 per share several times over the past three months without dipping below that price. You might decide that this is its support level. Until prevailing trading patterns change, you will expect the stock to continue trading down as low as $10 but not lower.”
With those values in hand, you can wait for the stock to approach its support level and buy in. Then, wait for the stock to approach its resistance band and sell.
In the case of AMD, Collins says he’s seeing resistance between $127.50 and $132.50 and he’s seeing support between $105 and $110.
“I see $105 as the level we would whoosh to if $110 fails, but I anticipate buyers or the company would step in around that level,” Collins wrote.
Marvell Technology (MRVL) $65.31. 5-day performance (-)0.033%.
TheStreet.com investors who leveraged Bruce Kamich’s December, 2021 column on Marvel Technology (MRVL) should have been stopped out of their long positions in the semiconductor manufacturer at $75.
Now that prices are showing some stability above $60 after hitting nearly $94 in December, Kamich said a fresh look at the charts seems like a good idea.
“In the updated daily Japanese candlestick chart of MRVL, we can see a bullish piercing pattern in the past few days,” Kamich said. “A rally back above the 200-day moving average line, should it happen, will improve the picture.”
Additionally, trading volume has increased recently and the daily On-Balance-Volume (OBV) line has turned up a bit.
“The 12-day price momentum study shows higher lows from late January to March while prices made lower lows,” Kamich said. “This difference in movement from prices to the indicator is a bullish divergence and can at times foreshadow a price increase.”
“The weekly OBV line declined in December and January but may be bottoming in February,” he added. “The 12-week price momentum study is coming back from a downside extreme.”
In Kamich’s Point and Figure chart of MRVL, he can see a downside price target of $56. “But we also see that a trade at $69 will improve the picture and maybe change the price projection,” he said.
Aggressive traders could consider buying a starter position in MRVL at current levels. “Risk is down to $62 and consider buying a bit more above $69,” Kamich noted. “I am looking for a recovery rally to just below the $80 area.”
Intel (INTC) $47.24. 5-day performance (-) 1.72%.
Auto vehicles and semiconductors are bound tightly together – cars and trucks aren’t built without chip technology.
Now, that relationship is being tested in an era of major chip shortages, reported TheStreet’s Tony Owuso.
“Over the past year, the world has been made acutely aware of the relationship between chipmakers and auto makers and just how much modern vehicles rely on semiconductor technology,” Owuso said. “Automakers have cut 656,200 vehicles from production in 2022 so far due to the shortage, according to Automotive News, which has been monitoring the situation for the past year.”
Progress is being made, however.
“The problem is trending in the right direction as the 13,100 vehicles that were removed from automakers' production plans last week were the smallest in months,” Owuso noted.
The semiconductor crisis has led to stronger ties between car companies and chip makers in recent month.
“Last year, Ford F announced a strategic agreement with GlobalFoundries Inc. General Motors GM partnered with Qualcomm QCOM to co-develop and manufacture chips,” Owuso reported. “Now Intel, one of the world's largest chipmakers, is expanding its footprint in automotive in a move that could tie its own future to the future of automotive technology.”
This week, Intel announced that it filed paperwork to take its Mobileye self-driving car unit public about five years after it purchased the Israeli company for $15 billion. The Wall Street Journal reported that the unit could fetch a valuation above $50 billion.
Mobileye had about $1.4 billion in revenue in 2021, a 40% year over year jump, according to CEO Amnon Shashua. The company has seen increased demand for its technology with a pipeline of about 50 million vehicles for its equipment at the start of the year, up from about 37 million in 2021, according to the Journal.
The IPO is expected to be one of the biggest stock market flotations this year, Owuso said.
Now, analysts say Intel is standing on the ground floor of this revolution with Mobileye.
“Whether it will be able to develop into an industry leader remains to be seen, but now investors can bet on whether Intel has the chops to make it happen or not,” Owuso said.
