This Chip Stock Could Follow NVIDIA Higher

Analysts upgrades and short covering could keep semiconductor stock Xilinx hot on the charts

Josh Selway
May 10, 2017 at 1:31 PM
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Semiconductor stocks are in favor today, thanks to an explosive earnings beat from NVIDIA Corporation (NASDAQ:NVDA). The VanEck Vectors Semiconductors ETF (SMH) is up 1.4% at $82.53 as a result, and earlier hit an all-time high of $82.67. The exchange-traded fund (ETF) now has a year-over-year gain of 60%, and options traders have been buying to open calls at an unusual rate, based on SMH's 10-day call/put volume ratio of 0.77 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- in the 96th annual percentile. Call open interest on SMH now stands at 97,774 contracts, just shy of its 52-week high of 98,184 from last Friday. 

Semiconductor Stocks Underloved by Analysts

Using Schaeffer's Senior Quantitative Analyst Rocky White's sector scorecard, it's interesting to note that the percentage of "buy" ratings among analysts covering semiconductor stocks has essentially stayed the same over the past year. This suggests analysts may be overlooking some winning stocks in this sector, and one name that could be due for extended upside is programmable chip stock Xilinx, Inc. (NASDAQ:XLNX)

Xilinx Stock Could Continue to Rise

XLNX shares have been stair-stepping higher over the past year, sporting a 12-month gain of about 50% to trade at $64.66, just shy of their 16-year high of $65.21 from yesterday. Plus, Xilinx stock recently broke north from a channel of higher highs and lows, with recent pullbacks contained by its 10-month moving average.

xilinx stock today

The company also just reported stronger-than-expected earnings on April 26, and an upbeat current-quarter outlook. Analysts have also tossed around Xilinx as a possible takeover target -- an opinion that's been shared by CNBC's Jim Cramer. Despite this promising backdrop, most analysts are actually bearish on the stock. 

Currently, there are 17 brokerage firms tracking XLNX, and just four of them say it's a "buy." Moreover, the shares are trading above the average 12-month price target of $62.05. As such, upgrades and price-target increases are a strong possibility considering the chipmaker's impressive rise on the charts and seemingly strong fundamentals. 

Interestingly, Xilinx stock is also being targeted by short sellers more and more. In the last reporting period alone, short interest increased 11.4%, putting 6.5% of XLNX's float in the hands of these bears. If the semiconductor stock can keep rising on the charts, it could put pressure on the shorts to cover, which would only fuel additional upside. 

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