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Stock Analyst Update

Altera and Xilinx Are Solid for the Long Term

Market's response to downgrades is shortsighted.

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What Happened?
Downgrades in the investment ratings of chipmakers Altera (ALTR) and Xilinx (XLNX) triggered a severe sell-off in the shares of both companies Tuesday. The decline of nearly 30% in midmorning trading comes after both stocks had already sold off in recent weeks. Neither of the downgrades pointed to any significant concrete long-term weakness specific to the companies or the industries in which they operate.

What It Means for Investors
Since the beginning of October, Altera's shares are down roughly 40%, and Xilinx's shares are down about 35%. However, we think the market has overreacted. Although there is a risk that growth will normalize or even become slightly erratic in the near term, this is often the nature of the beast in the chip sector--we do not believe this signals deteriorating long-term industry fundamentals.

Jeremy Lopez does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.