Supply Cuts Knock 2 Chip Stocks from Multi-Month Highs

Nvidia is falling ahead of this evening's earnings report

Digital Content Manager
Nov 16, 2022 at 1:01 PM
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The semiconductor sector is feeling the heat today, after Micron Technology, Inc. (NASDAQ:MU) announced it is cutting its memory chip supply in 2023, and will make more cuts to its capital spending plan. While this news is certainly hurting the sector, it doesn't come as a big shock, as Micron issued a warning earlier this year as inflation began to rise and hurt demand for PCs and smartphones. At last check, MU is down 6.1% at $59.28.

Its competitors aren't doing much better, with Nvidia Corporation (NASDAQ:NVDA) running into technical troubles ahead of its third-quarter earnings report, which is due out after the close. NVDA was last seen down 2.8% at $162.06, and today's downturn could mean the end of the security's recent rally, which stopped just below of the $170 yesterday. The security did manage to close atop the 160-day moving average for the first time since early April on Tuesday, though NVDA is now back below this trendline. 

nvda nov 16

Nvidia stock does have a mostly upbeat post-earnings past, however. During its last eight next-day sessions, the security was higher five times, averaging a 4.8% return, regardless of direction. This time around, the options pits are pricing in an 11.6% post-earnings move for the stock.

Over in the options pits, puts have been incredibly popular in the last two weeks, with 1.10 puts picked up for every call during this time period. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), this ratio sits higher than 98% of annual readings.

Meanwhile, analysts are bullish. In fact, Credit Suisse earlier assumed coverage the chip stock with an outperform rating and a $210 price target. Coming into today, 19 of the 27 firms in coverage called NVDA a "buy" or better, while the 12-month consensus price target of $189.37 is a 17% premium to current levels. 

Circling back to Micron stock, it is also coming off a rally that began in late September. Yesterday, MU briefly topped the 180-day moving average for the first time since March, before settling below it. The security is still up almost 20% this quarter, though it's lost 36.3% in 2022. 

mu nov 16

Credit Suisse also initiated coverage of Micron stock earlier today, giving the equity an "outperform" rating and a $78 price target. Analyst consensus on MU is mostly bullish, with 21 of the 27 in coverage calling it a "buy" or better heading into today.

Options traders also lean bearish on Micron stock. At the ISE, CBOE, PHLX, the equity sports a 10-day put/call volume ratio of 1.21, which stands higher than 94% of readings from the last year. In other words, options players have been way more put-hungry than usual.


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