Apple (AAPL) crushed the semis. Can M&A bring them all back? Or are things just better than we think?
We are seeing some fantastic moves Monday in the semiconductors, in large part because President Donald Trump might be greenlighting ZTE (ZTCOY) to get U.S.-made parts, causing the Chinese to perhaps reconsider their tough stance against the merger of Qualcomm (QCOM) and NXP Semi (NXPI) .
I can't stress how important the ZTE news is for the semiconductor group, because without the hope of takeovers, you have a lot of cheap stocks in the sector, but not a lot of catalysts to bring out their value.
Let's just review the stocks that are flying. First, there are the companies that have a gigantic amount of exposure to Apple -- Cirrus Logic (CRUS) , Skyworks Solutions (SWKS) , Texas Instruments (TXN) , Qorvo (QRVO) and Broadcom (AVGO) . All of these companies got hammered by a one-two punch: the U.S. government's shutdown of Broadcom's buy of Qualcomm and then the well-documented maturing of the cellphone business.
Remember, the stock of Apple roared not on good cellphone numbers, but on the inflection of the service revenue. Without takeovers or strength in cellphones, there simply was no reason to buy these stocks.
Now, we know that the serial acquirer that is Broadcom has to be on the hunt for another deal to bulk up earnings, even as Morgan Stanley has an excellent piece out Monday giving you multiple paths to higher prices (including an aggressive buyback).
I'm not sure what Skyworks wants to do. The stock is so darned cheap and well-run, and it did have an excellent quarter. It shouldn't have to do a thing, but that's not how the stock market is working right now.
The other semi names are all fodder for Broadcom. So is Xilinx (XLNX) , which has less cellphone exposure and more Internet-of-Things ties, as well as Marvell (MRVL) and Integrated Device Technologies (IDTI) . All three could be for sale at the right price.
The semis are a tight knit group, brought together by an ETF. You know I can't stand anything that commoditizes the group, as they are so different. But not today. Companies that have some Apple exposure, companies like Micron (MU) and Texas Instruments, get pulled right along with the Broadcom targets even as neither is a likely candidate.
The stocks of both Micron and Texas Instruments fell after they reported their last quarters. I thought that judgment unfair. Texas Instruments had a terrific quarter. Micron's quarter was excellent, but flash memory (one of its two product lines) has peaked. Many Micron customers are also calling a peak in DRAMs, MU's other major business.
Nvidia had an amazing quarter last week but those who wanted a blowout from crypto currencies really had no clue about what's driving the stock, namely gaming, the data center and autonomous driving. Intel's gotten tailwinds galore from its traditional PC business, as well as the data center and also autonomous driving after it bought Mobileye for $15 billion last year.
Finally, one more to consider: Advanced Micro Devices (AMD) . Dr. Lisa Su gave you an incredibly strong quarter with excellent results from the data center, gaming and personal computers. It had the misfortune to report right in the middle of the bruising semi selloff. At last it comes alive.
I can tell you that this group became seriously underweighted as part of the trade was dialogue, harder hit than any other because of the ZTE component issue and what looked like the end of M&A for semis.
Now that everything's back on the table and there are no earnings in sight, the group can lead for a couple of days as hedge funds seek to be much bigger in the very stocks they forsook last month. The chase is on, yes the chase for performance, that miserable experience that produces subpar results simply because the fund managers don't have the patience to let them come down.