Intel Upgrade Positions Chips to Break Out

This morning Intel (INTC) was upgraded by Morgan Stanley and its price target was raised from $15 to $19. Morgan Stanley analyst Mark Lipicas expects Intel’s gross margins to increase by 2010 on the heels of a pick-up in revenues from its high-margin, high-ASP server MPUs early next year. The analyst also cites positive near-term checks on the PC supply chain and thinks that Microsoft’s Windows 7 will accelerate PC unit shipments by early 2010. Lipicas raised INTC’s EPS estimates above the Street, pegging 2009 numbers at $.70 and 2010 at $1.05.

Intel’s stock has been languishing below its 200 day moving average since September of last year. Could this morning’s upgrade be the catalyst allowing Intel to finally break above this long-term moving average of $16.53? Based on the action in the semiconductor group via the ETF, SMH, I think Morgan Stanley’s upgrade of INTC is timely in the short-term.

SMH has been trying to break above its long term moving average for the past few weeks. On a positive note, the 20 and 50 day moving averages have turned higher on SMH since late March and both moving averages appear to be in position to shortly break above the 200 day moving average. With these impending crosses of the moving averages coming, it would seem that more money will be flowing into the semiconductor group in the coming weeks and months. As is often the case as markets transition from a bear to a bull market, this potential move higher in the semiconductors would come well ahead of the fundamentals returning to complete health for this sector.

While this morning’s INTC upgrade bodes well for the SMH ETF, I have been focused on smaller niche semi plays such as Silicon Labs (SLAB), CREE, and STEC. All of these companies have already broken out in the past month and are poised to be the more exciting semiconductor plays over the course of this year. These are the new leaders of the semiconductors, while Intel still remains the former leader that is just playing catch-up with them.

Disclosure: I am long STEC and SMH in my accounts.

Comments

[Prudent Man...:]

Hope that you will run up the semis so he can dump his on you.

Morgan Stanley is guessing what will happen in 2010 but can't tell us what is happening now. How can anyone buy this "buy side" nonsense!

INTC is an excellent company selling at a premium to the market, which it probably deserves. Unfortunately, the market is over-priced as it can only continue to go up with unsustainable government deficit financing, the worst kind of demand. The Piper Must Be Paid.

May 04 03:55 PM

[wobatus:]

Not buy side. Sell side.


On May 04 03:55 PM Prudent Man CFA wrote:

> Hope that you will run up the semis so he can dump his on you.<br/>
>
> Morgan Stanley is guessing what will happen in 2010 but can't tell
> us what is happening now. How can anyone buy this "buy side" nonsense!
>
>
> INTC is an excellent company selling at a premium to the market,
> which it probably deserves. Unfortunately, the market is over-priced
> as it can only continue to go up with unsustainable government deficit
> financing, the worst kind of demand. The Piper Must Be Paid.

May 04 05:26 PM

[User 344203:]

Mark is a great analyst and usually pretty conservative, so when he upgrades it means something. This could be the bottom

May 04 07:58 PM