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Semiconductor Outlook:  AMD, NXP, GXO and ON

Shortages and earnings are keying sector performance as November gets underway.

The benchmark PHLX Semiconductor Index  (SOXX) - Get iShares Semiconductor ETF Report rose sharply over the last week to stand at  3,510 on November 2. The index is up 26.65% on a year-to-date basis and it’s up 53.75% on a one-year timeframe.

Chip shortages and earnings reports are driving performance as November opens for business. Additionally, the industry news is more positive than semiconductor traders might think.

“We believe the semiconductor industry is cyclical, and it is not different this time,” said Gus Richard, a technology analyst at Northland Securities in a new research note. “Demand has been pulled forward by the pandemic and an inventory build is under way with inventory starting to show up on balance sheets throughout the supply chain….Valuation has been stretched like never before. We are shifting our focus to value and away from momentum.”

As for financials, On Semiconductor  (ON) - Get ON Semiconductor Corporation Report  blew the market away with a powerful 3rd quarter report (more on that below), while Silicon Motion Technology  (SIMO) - Get Silicon Motion Technology Corp. Report saw its share price rise by 5.2% after raising its dividend by 43% last week.  

Commodity Supercycle, The Debate Continues

Here are the semiconductor stocks the experts at are staring down this week.

On Semiconductor  $55.15 - 5-Day Performance: 26.16%. This major Apple chip supplier saw its price target rise from $55 to $65 by KeyBanc Capital after a sterling third-quarter earnings report on November 1.

On Semi said non-GAAP earnings for the three months ending in September were pegged at 87 cents per share, a more than three-fold increase from the same period last year and firmly ahead of the Street consensus forecast of 74 cents. Group revenues, On Semi said, rose 32% from last year to $1.742 billion, coming in just ahead of analysts' forecasts of a $1.71 billion tally.

Gross margins increased by nearly 8% from last year to $41.5%, On Semi said, while operating margins were up nearly 5% to $24.5%.

“Looking into the final months of the year, On Semi -- which makes a host of iPhone components -- said it sees revenues in the range of $1.74 billion to $1.79 billion, a better-than-expected tally that could assuage some concerns for the tech giant's supply chain heading into the holiday season,” wrote TheStreet’s Martin Baccardax.

NXP Semiconductors  (NXPI) - Get NXP Semiconductors NV Report. $206.91 – 5-Day Performance: 5.48%. NXP is on a month-long heater – its share price is up 7.97% since early October. It issued a bullish outlook on its own financials and chip supplies going forward on November 1.

The Netherlands-based chip supplier said fourth-quarter revenue will be $2.93 billion (2.5 billion euros) to $3.08 billion as global chip shortages continue to drive sales. That compares with the $2.91 billion average estimate from analysts surveyed by Bloomberg.

“We continue to take additional actions to assure supply to our customers, which underpins our continued confidence in robust growth in the remainder of 2021 and through 2022,” Chief Executive Officer Kurt Sievers said Monday in a statement.

TheStreet’s Bruce Kamich is taking a magnifying glass to NXPI, noting the stock “has traded in a sideways consolidation pattern since March. The lower end of the pattern has been the $180 area and the upside the $220 zone.”

“Prices broke below the 50-day moving average line and the 200-day line in September and early October, but now NXPI is back above the 200-day line and just below the 50-day average,” Kamich added.

Kamich sees a potential upside price target in the $246 area for NXP, and notes the company’s stock charts are positive and that NXPI looks ready to break out of its long sideways consolidation pattern.

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“Traders could go long here risking $185,” he said. “The $246 area is our price target for now.”

Advanced Micro Devices   (AMD) - Get Advanced Micro Devices, Inc. Report. $127.63 – 5-Day Performance: 3.82%. The outlook on semiconductor stocks, in general, has not exactly raised the roof, with supply shortages crimping chip company financial performance over the past few months.

Northland Capital Markets analyst Gus Richard downgraded both AMD and Intel  (INTC) - Get Intel Corporation Report to “hold” recently, with a grim warning to the semiconductor sector.

“Demand has been pulled forward by the pandemic and an inventory build is under way with inventory starting to show up on balances sheets throughout the supply chain,” Richard noted “As the global economy recovers…people will transition from buying stuff to doing stuff, and demand for products that consume semiconductors is going to slow, in our view.”

Richard makes a good point, but will a muscle-flexing AMD take a hit? Maybe not.

Exhibit “A” - TheStreet’s Stephen Guilfoyle points to Lisa Su, AMD’s chief executive officer, after the company posted third-quarter results last week.

“She did it again,” Guilfoyle said. “If you read me often, then you well know that I have been a fan of AMD CEO Lisa Su pretty much since she started to turn AMD around, and simply put. She and her firm, especially of late, never cease to amaze.

For the full year, AMD is guiding revenue toward growth or 65% drive by of all businesses.

“Some of you may recall that Lisa Su guided toward growth of 37% for FY 2021 at the end of CY 2020,” Guilfoyle said. “The more recent guidance that this is up from was for growth of 60%. The firm expects to sustain an adjusted gross margin of 48%. For the current quarter, AMD expects revenue to land close to $4.5 billion give or take $100 million, which at the midpoint would be growth of 39%.”

In a "drop the mic" moment during the earnings call, Lisa Su stated that she expects the market for PCs to be flattish for 2022. “Su insinuated a lack of concern given that she expects AMD to keep taking market share away from - sort of, it's not that close anymore - rival Intel,” Guilfoyle added.

Additionally, the firm does expect the Xilinx  (XLNX) - Get Xilinx, Inc. Report deal to finally close at some point this calendar year.

“Su is excited about the expansion of the portfolio that this deal will bring, especially in the fields of artificial intelligence and adaptive computing,” Guilfoyle said. “That’s a huge deal as AMD sets its sights on Nvidia (NVDA), and the very high end of computing projects such as Facebook's (FB) much hyped Metaverse.”

“The fact that data center sales doubled and that is just one of several astounding headline take-aways from AMD's quarter,” he added. “With AMD, there is much awesomeness to go around.”

GXO Logistics. $95.37 – 5-Day Performance 10.18%. GXO is a logistics company and not a semiconductor company. But its role as a major link in the supply chain does impact the chip sector, which is mired in shipping troubles. In that regard, news from GXO that its storage centers are filling up is good news for the semiconductor industry.

“Yesterday, GXO Logistics, the recent spin out from XPO Logistics (XPO), shared that it’s seeing more goods arrive at its facilities -- a signal that the supply chain snags are beginning to subside,” said TheStreet’s Action Alerts Plus Team. “According to Chief Executive Officer Malcolm Wilson, "We're through the worst of it. I think we've reached the peak."

While the peak may be happening, it still means supply chains will have to work their way back to more normalized levels, and are likely to still be a drag in the current quarter.”