Tag Archives: QCOM

Short Sellers Grow More Selective on Semiconductor Stocks

Semiconductor trends are considered to be leading indicators of technology and broader electronics demand. In a wider sense, semiconductor and tech stocks are considered to be leading indicators for the markets in general. A strong rally in the tech sector pushed many of these companies to new highs, but with the return of volatility semiconductors will have to rally again if markets want to return to record levels.

The April 30 short interest data have been compared with the previous report. Short interest moves in these selected semiconductor stocks were mixed.

Intel Corp. (NASDAQ: INTC) saw its short interest decrease to 76.32 million shares. The previous level was 86.26 million. Note that, like AMD, Intel is one of the most shorted Nasdaq stocks. Intel shares were last seen trading at $54.25, in a 52-week range of $33.23 to $55.79.

The number of Advanced Micro Devices Inc. (NASDAQ: AMD) shares short decreased to 179.44 million from the previous level of 192.62 million. Shares recently traded at $12.05, in a 52-week range of $9.04 to $15.65.

Qualcomm Inc. (NASDAQ: QCOM) saw the number of its shares short fall to 16.89 million from the 20.03 million reported in the previous period. Shares were changing hands at $54.45, in a 52-week trading range of $48.56 to $69.28.

Short interest in Applied Materials Inc. (NASDAQ: AMAT) rose to 16.83 million shares. The previous reading was 14.46 million. Shares were trading at $54.70, in a 52-week range of $40.79 to $62.40.

Micron Technology Inc. (NASDAQ: MU) saw its short interest increase to 57.80 million shares from the previous reading of 53.50 million. Shares were trading at $51.85, in a 52-week range of $26.39 to $63.42.

And the short interest in Broadcom Ltd. (NASDAQ: AVGO) increased to 6.74million shares in the period from the previous 5.12 million. Shares were last seen at $240.25, in a 52-week range of $221.98 to $285.68.

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Fridays Vital Data: Intel Corporation (INTC), NXP Semiconductors N.V. (NXPI) and Alibaba Group Ho

U.S. stock futures are trading broadly lower this morning. Wall Street was clearly anxious ahead of this morning’s April jobs report. Expectations were for a gain of 188,000 last month, on the heels of March’s surprisingly low 108,000 job adds.

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Meanwhile, corporate earnings continue to chug along. Alibaba Group Holding Ltd (NYSE:BABA), Celgene Inc. (NASDAQ:CELG) and GoPro Inc. (NASDAQ:GPRO) are front and center on the earnings front.

Heading into the open, futures on the Dow Jones Industrial Average are down 0.33%, S&P 500 futures have shed 0.35% and Nasdaq-100 futures have lost 0.42%.

Turning to the options pits, volume rebounded to normal levels on Thursday. Overall, about 19.9 million calls 18.8 million puts crossed the tape. Despite the jump in call activity, the CBOE single-session equity put/call volume ratio surged to a one-month high of 0.75. The 10-day moving average also moved higher, hitting it’s own one-month high of 0.66.

Options traders were once again paying sharp attention to the semiconductor sector. News broke that “next generation” flaws were again found in Intel Corporation (NASDAQ:INTC) chips, driving heavy volume on INTC stock. Additionally, NXP Semiconductors N.V. (NASDAQ:NXPI) reported weaker-than-expected earnings, drawing attention to options arbitrage spreads in it’s Qualcomm Inc. (NASDAQ:QCOM) merger deal. Finally, Alibaba Group Holdings was call heavy heading into this morning’s quarterly earnings report.

Let’s take a closer look:

Friday’s Vital Options Data: Intel Corporation (INTC), NXP Semiconductors N.V. (NXPI) and Alibaba Group Holding Ltd (BABA)investorplace.com/wp-content/uploads/2018/05/05-04-2018-Top-Ten-Options-300×136.png 300w, investorplace.com/wp-content/uploads/2018/05/05-04-2018-Top-Ten-Options-200×90.png 200w, investorplace.com/wp-content/uploads/2018/05/05-04-2018-Top-Ten-Options-400×181.png 400w, investorplace.com/wp-content/uploads/2018/05/05-04-2018-Top-Ten-Options-116×52.png 116w, investorplace.com/wp-content/uploads/2018/05/05-04-2018-Top-Ten-Options-100×45.png 100w, investorplace.com/wp-content/uploads/2018/05/05-04-2018-Top-Ten-Options-111×50.png 111w,https://investorplace.com/wp-content/uploads/2018/05/05-04-2018-Top-Ten-Options-78×35.png 78w” sizes=”(max-width: 518px) 100vw, 518px” />

Intel Corporation (INTC)

Options traders loaded up on Intel calls yesterday. It was an interesting reaction to news that “next generation” flaws had been found in Intel semiconductors. Specifically, a German computing magazine reported yesterday that researchers found eight new flaws in INTC chips resembling the Meltdown and Spectre bugs revealed earlier this year.

Intel said it was aware of the flaws and was working to patch them. “We believe strongly in the value of coordinated disclosure and will share additional details on any potential issues as we finalize mitigations,” Intel said in a statement.

In a “been there, done that” kind of response, INTC options traders loaded up on call options following the news. Volume came in at 177,000 contracts, with calls gobbling up 83% of the day’s take.

Looking out to May options, the bulls appear to be in firm control of Intel’s short-term sentiment backdrop. Currently, the May put/call open interest ratio comes in at 0.45, with calls more than doubling puts for the series.

But this Intel optimism is not without merit. In fact, INTC stock continues to outperform most of its semiconductor peers, including red-hot names like Advanced Micro Devices, Inc. (NASDAQ:AMD) and Micron Technology Inc. (NASDAQ:MU).

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NXP Semiconductors N.V. (NXPI)

If you are arbitraging Qualcomm’s buyout of NXP Semiconductors, yesterday was painful for you. NXPI stock plunged more than 10% after the company missed Wall Street’s first-quarter earnings target by 12 cents per share. NXPI is now trading about 36% below Qualcomm’s buyout offer of $127.50 per share.

The deal has been slowed by Chinese regulators, whom many argue are dragging their feet due to troubled China/U.S. trade relations.

NXPI options traders were somewhat bullish following the news. Volume rose to 190,000 contracts, nearly tripling NXPI’s daily average. Calls made up about 58% of the day’s take. But while short-term options are optimistic, August options are downright bearish.

Qualcomm and NXP expect a ruling from China by their new deal deadline of July 25. If the August put/call OI ratio of 1.80 is any indication, NXPI options traders believe the deal will fall apart.

Alibaba Group Holding Ltd (BABA)

Alibaba calls were quite popular ahead of this morning’s quarterly report. Volume rose to an impressive 406,000 contracts, with calls eating up 71% of the day’s take. As a result, the May put/call OI ratio fell to 0.67 as traders bet on a post-earnings rally.

Heading into the open, BABA stock is up 1.5% amid a weak start among the major market indexes.

By the numbers, Alibaba posted another blowout quarter. Earnings rose 32% year-over-year to 90 cents per share, topping expectations by 5 cents per share. Sales surged 61% to $9.73 billion, easily beating Wall Street’s view for $9.3 billion.

As of this writing, Joseph Hargett held no positions on any of the aforemen

Amid Negative Sentiment, Broadcom Inc Stock Offers a Buying Opportunity

The narrative surrounding Broadcom Inc (NASDAQ:AVGO) certainly has changed in a hurry. AVGO stock had been one of the better performers even in a strong chip space; even with a recent pullback, Broadcom stock has risen 600%+ in the past five years. A steady diet of M&A and solid organic growth made AVGO one of the more widely praised stocks in all of tech.

But since the company’s takeover of Qualcomm, Inc. (NASDAQ:QCOM) was squashed last month, the sentiment surrounding Broadcom stock seems to have changed. AVGO stock has fallen 20% from late November highs, with a nearly 10% drop in just the last few sessions amid concerns about the semiconductor sector.

I’ve even seen AVGO called out as some kind of semiconductor version of Valeant Pharmaceuticals Intl Inc (NYSE:VRX), a roll-up doomed-to-fail company as its sector turns south.

From here, the selloff itself looks like an overreaction. While there seems to be some fear that Broadcom may look to make another big deal with its pursuit of Qualcomm denied, recent events suggest otherwise.

Broadcom has generated solid organic growth of late — its rise over the past few years hasn’t come from just M&A. And AVGO stock looks downright cheap at this point. With Broadcom stock near a support level, and offering a 3% yield, intrepid contrarian investors should at least take a long look at it.

A 20% Selloff in Broadcom Stock

What’s interesting about the recent decline in Broadcom stock is that it can’t be attributed to the Qualcomm deal falling apart. AVGO shares actually rose on the news that the deal had been called off. Certainly, some investors saw the deal, even at a higher price, as beneficial. But it’s not as if Broadcom stock was reliant on the Qualcomm deal to go through to have any sort of bull case.

Indeed, AVGO stock now trades about 6% below where it did before rumors of the deal started circulating. And that’s despite a pair of earnings beats since then and just a 2% decline in the SOX (Philadelphia Semiconductor Index).

It’s possible that investors are worried that Broadcom will simply go and make another deal — one which might not be as attractive as the Qualcomm acquisition looked (at least on paper; I think Qualcomm has a number of challenges).

Earlier this month, Tom Taulli took a look at potential targets for Broadcom, including Xilinx, Inc. (NASDAQ:XLNX), to whom Broadcom has been linked for some time.

M&A aside, there are real concerns surrounding the semiconductor space at the moment. A selloff in Apple Inc. (NASDAQ:AAPL) has led investors to remember that the industry is cyclical. Broadcom has exposure to the iPhone and more broadly to the apparently slowing smartphone space.

Given the amount of news surrounding AVGO stock, the uncertainty surrounding M&A, and sector weakness, investors have chosen to sell first and ask questions later.

The AVGO Story Is Wrong

But there are a number of reasons to see the selloff in AVGO as an opportunity. The roll-up concerns look badly overwrought. Broadcom does have some debt but only about $10 billion on a net basis, or well less than 2x EBITDA. Its organic growth actually has been solid and better than the industry as a whole, as analysts at Bernstein pointed out last year.

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This isn’t a company creating growth solely through M&A, or using acquisitions to cover up declines in its legacy business. Rather, Broadcom’s M&A strategy has been targeted and successful. This is a $100-billion company whose share price has risen by a factor of seven over the past five years.

That alone should negate the fears about a value-destructive deal. An XLNX deal might make some sense, but with Xilinx’s market cap around $17 billion, it wouldn’t be enough to trip Broadcom’s growth story up. Meanwhile, Broadcom just announced a $12-billion repurchase authorization — enough to buy back over 12% of its shares at the current price.

That seems to signal that Broadcom now sees itself as too cheap, and that’s a relatively easy case to make.

An Opportunity in AVGO Stock

AVGO stock trades at just 11x forward EPS. The average analyst target price is $321 — an absolutely massive gap for a company this size. If the Street is right, Broadcom stock has 40% upside.

And if analysts are too optimistic, there’s still room for gains. Simply moving to a 14-15x multiple would get AVGO back to recent highs and suggest 25-30% upside. That’s not a huge ask for a growing company. Intel Corporation (NASDAQ:INTC) trades at 13.4x with relatively tepid growth and substantial exposure to the declining PC space.

The recent trading in AVGO really looks like a market that is unsure and is selling off the stock based on sector weakness. But there aren’t real catalysts here, though a cyclical downturn in the semiconductor space is a real risk.

But at 11x forward EPS, AVGO is pricing in a reasonably high probability of near-term weakness. Worrying about the M&A strategy of a company who has made solid acquisition after solid acquisition makes little sense. Debt is not a significant issue.

The 20% selloff in Broadcom stock simply has been too much. And it creates an opportunity for investors willing to step in.

As of this writing, Vince Martin has no positions in any sec