2 Chips Stocks Hot After Upgrades

Susquehanna's new XLNX price target is a 15% premium to last night's close

by Karee Venema

Published on Nov 13, 2018 at 10:24 AM

Chip stocks have had a rough stretch, as evidenced by the price action in the VanEck Vectors Semiconductor ETF (SMH), down 15% since its early September highs near $110. Susquehanna sees buying opportunity within the semiconductor space, though, and earlier today upgraded Nvidia Corporation (NASDAQ:NVDA) and Xilinx, Inc. (NASDAQ:XLNX) to "positive" from "neutral" -- citing expectations for the artificial intelligence (AI) market to hit $6.5 billion by 2025.

Nvidia 4Q Guidance Could Miss, Says Susquehanna

For Nvidia, the brokerage firm also expects its graphics processing units (GPUs) to be a positive catalyst over the long term. However, Susquehanna warned that "odds are substantial that management's guidance will miss the Street's 4Q" when NVDA earnings are released after the close this Thursday, Nov. 15, and cut its price target on the stock to $230 from $250.

At last check, NVDA stock is up 4.5% to trade at $198.03, but running out of steam near its year-to-date breakeven mark at $193.50. Just above here is the round $200 level, as well as $203.80 -- a 23.6% Fibonacci retracement of Nvidia stock's plunge from its Oct. 2 record high of $292.76 to its Oct. 29 annual low of $176.01.

Most analysts are bullish on Nvidia, but short sellers have been ramping up their exposure to the chip stock. Short interest rose 11.7% in the most recent reporting period to 12.95 million shares. These new bears are likely hoping for a repeat performance from NVDA stock, which logged back-to-back negative earnings reactions in May and August.

Susquehanna Pegs 5G as a "Kicker" for Xilinx

In addition to the upgrade, Susquehanna raised its Xilinx price target to $95 from $82 -- a 15.4% premium to last night's close. The brokerage firm waxed optimistic on data center momentum, and said "5G is an extra kicker for Xilinx." In reaction, XLNX has shot up 1.9% to trade at $83.87, within a chip-shot of its 18-year high of $88.20 from Nov. 7.

This positive price action is just more of the same for XLNX, which has held up well relative to its peers. In fact, Xilinx managed to tack on 6.5% last month as the broader SMH plunged 12.2%, and is boasting a 24% year-to-date lead.

There's room for more analysts to follow Susquehanna's bullish lead, too. Despite the stock's impressive showing, the majority of the 19 brokerages in coverage still maintain a "hold" or "strong sell." Plus, the average 12-month price target of $86.82 is in line with XLNX's current price.

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