Abhinav Davuluri: Semiconductor stocks have been on a wild ride thus far in 2019. Toward the end of 2018, a multitude of challenges arose--including but not limited to: PC chip supply constraints, inventory builds in smartphones and graphics chips, cloud inventory digestion, weaker demand in China, and a tepid memory market.
Micron, TSMC, and Intel have all called for a stronger second half of 2019, particularly with improved cloud spending by the likes of Amazon, Microsoft, and Google. While we concur with this sentiment, we think Intel represents the most compelling investment opportunity.
Intel’s updated guidance for 2019 was reduced by $2.5 billion, but nonetheless we remain positive on major industry trends such as 5G, AI, automotive, and the shift to the cloud, with wide-moat Intel well positioned to capitalize on many of these burgeoning trends with unmatched breadth in its product portfolio.
Rival AMD is set to report on April 30, and while we expect share gains for AMD, we think shares are overvalued and we question sustainability of AMD’s competitiveness against Intel and Nvidia.
Nvidia won’t report until mid-May, but the short-term headwinds related to data center spending will likely have a negative impact on the graphics leader, as nearly a third of sales come from major cloud vendors.
We also look forward to hearing from Qualcomm on May 1. Although shares have had a nice run since the settlement with Apple, we would like to hear from management on the timing and magnitude of its chip and licensing businesses returning to normalcy before adjusting our $72 fair value estimate and thus see shares as currently overvalued.