S&P 500   5,088.80
DOW   39,131.53
QQQ   436.78
How this AP photographer captured a unique splash at the swimming worlds with an underwater camera
Laser breakthrough could send stock soaring 2,467% (Ad)
Delays in promised Western military aid to Ukraine are costing lives, the defense minister says
MILAN FASHION PHOTOS: Feben, Rave Review promote looks for women of all shapes, ages and sizes
Laser breakthrough could send stock soaring 2,467% (Ad)
Caribbean leaders meet with Haiti's prime minister. Foreign force deployment is on the agenda
What recession? Professional forecasters raise expectations for US economy in 2024
Laser breakthrough could send stock soaring 2,467% (Ad)
Stock market today: Asian shares mostly decline, while Tokyo again touches a record high
AT&T will give $5 to customers hit by cellphone network outage
S&P 500   5,088.80
DOW   39,131.53
QQQ   436.78
How this AP photographer captured a unique splash at the swimming worlds with an underwater camera
Laser breakthrough could send stock soaring 2,467% (Ad)
Delays in promised Western military aid to Ukraine are costing lives, the defense minister says
MILAN FASHION PHOTOS: Feben, Rave Review promote looks for women of all shapes, ages and sizes
Laser breakthrough could send stock soaring 2,467% (Ad)
Caribbean leaders meet with Haiti's prime minister. Foreign force deployment is on the agenda
What recession? Professional forecasters raise expectations for US economy in 2024
Laser breakthrough could send stock soaring 2,467% (Ad)
Stock market today: Asian shares mostly decline, while Tokyo again touches a record high
AT&T will give $5 to customers hit by cellphone network outage
S&P 500   5,088.80
DOW   39,131.53
QQQ   436.78
How this AP photographer captured a unique splash at the swimming worlds with an underwater camera
Laser breakthrough could send stock soaring 2,467% (Ad)
Delays in promised Western military aid to Ukraine are costing lives, the defense minister says
MILAN FASHION PHOTOS: Feben, Rave Review promote looks for women of all shapes, ages and sizes
Laser breakthrough could send stock soaring 2,467% (Ad)
Caribbean leaders meet with Haiti's prime minister. Foreign force deployment is on the agenda
What recession? Professional forecasters raise expectations for US economy in 2024
Laser breakthrough could send stock soaring 2,467% (Ad)
Stock market today: Asian shares mostly decline, while Tokyo again touches a record high
AT&T will give $5 to customers hit by cellphone network outage
S&P 500   5,088.80
DOW   39,131.53
QQQ   436.78
How this AP photographer captured a unique splash at the swimming worlds with an underwater camera
Laser breakthrough could send stock soaring 2,467% (Ad)
Delays in promised Western military aid to Ukraine are costing lives, the defense minister says
MILAN FASHION PHOTOS: Feben, Rave Review promote looks for women of all shapes, ages and sizes
Laser breakthrough could send stock soaring 2,467% (Ad)
Caribbean leaders meet with Haiti's prime minister. Foreign force deployment is on the agenda
What recession? Professional forecasters raise expectations for US economy in 2024
Laser breakthrough could send stock soaring 2,467% (Ad)
Stock market today: Asian shares mostly decline, while Tokyo again touches a record high
AT&T will give $5 to customers hit by cellphone network outage

If Ray Dalio took profits here, then this stock needs to catch up

abstract image of semiconductor chip as part of an integrated circuit

Key Points

  • The semiconductor space may have squeezed out all its potential gains, or so Ray Dalio seems to show.
  • Among the many winners, one name is looking to catch up in its financials, and management has the right plan to make this a reality.
  • Analysts agree and have rewarded the stock with the only upside left in the peer group.
  • 5 stocks we like better than Micron Technology

If there is one thing that investors need help getting used to, it is learning where - and where not - to take cues for potentially better places to invest when they come up. Many "experts" are fighting for eyeballs, recommending this stock and that trade, only to face hoards of dissatisfied customers who lost money.

For this and many other reasons, it could be wise to listen to the investors who don't get paid to advertise what they are buying and selling. The ones who make their money by investing for themselves and potentially for their clients as well. One such investor is Ray Dalio, the founder of Bridgewater Associates, the biggest hedge fund in the world.

Dalio and Bridgewater have been decreasing their position in Broadcom NASDAQ: AVGO after the stock reached new 52-week highs. The selling could be just some profit-taking to rebalance his portfolio or a change in sentiment toward the sector. Whichever it is, stocks like Micron Technology NASDAQ: MU have some catching up to do.

What's the market?

Looking at the family tree of semiconductor stocks can be an excellent way to begin answering the question of what the market is doing about the recent rallies in the space. However, to understand the future, you must understand a bit of the past. So here it is:


During the peak effects of the COVID-19 pandemic, there were shortages in all the necessary raw materials to make semiconductors. Since many industries rely on chips and semiconductors to function, these shortages caused bottlenecks and delays in nearly every sector of the economy. 

Bringing you back to economics class, what happens when a lot of people are after too much of the same product? The price of the desired product goes up. Now add to that dynamic that inventories for this product are in tight supply, making it hard to fulfill these added orders and guess what comes next. If you thought inflation, congratulations, here's a gift.

Profit margins jumped to new highs throughout the space as pricing power allowed all companies to boom past analyst expectations. This trend has lasted through much of 2023. So now that you are all caught up, here's what's happening.

Inventory levels across the industry have been rising now that all of the previous orders have been fulfilled. The problem is that bottlenecking demand is less fierce than during 2020-2021. Knowing what you know now and applying the opposite law of economics, what do you think will happen to margins?

That's right, losses in pricing power will potentially drive margins lower for most of these firms, a trend that has already reared its ugly head in recent quarters for some of these names. However, Micron is immune, or rather, the company is in a completely different position.

Difference maker 

On a quarterly basis, stocks like Advanced Micro Devices NASDAQ: AMD show a decrease in gross margins, driven by rising revenue costs and other sales price dynamics. Specifically for Advanced Micro Devices, the rate went from 49.5% in the second quarter of 2023 to 47.4% in the third quarter. It's not huge, but it's a sign of the times.

For Broadcom, the story follows along the same lines, with second quarter 2023 gross margins going from 69.4% down to 68.9%, a smaller rate of decline but another sign of the shifting tides in the semiconductor space.

Now for a contrasting measure and the difference maker in the industry, Micron. Though still not net positive, gross margins rose from negative 17.8% to negative 10.8%, nearly double the improvements in the cost of goods! 

So why would markets reward a stock with negative margins? Well, the earnings presentation lays out one of the reasons behind it. Within it, management speaks to their plans of keeping supply below the expected demand for DRAM and NAND chips and keeping a tight inventory coming into 2024 as well.

Assuming management can pull this off, the earnings expansion that will be created can be enough to send this stock flying more than it already has! And allow its financials to catch up to the rest of the pack. These assumptions are already being built into analyst price targets.

You see, Broadcom stock price targets land on $944.70 a share, 16.1% lower than where the stock trades today. For Advanced Micro Devices, a $137.40 price target also shows nearly a 6% downside from today's prices, which could have been better choices to begin with.

For Micron, a price target of $91.60 (which keeps getting boosted) will bring a 5.7% upside for a change in the industry trend. All the more reason to think that this stock still could have some potential catching up to do.

→ AI Stock Caught Trading Under Secret Name (From The Oxford Club) (Ad)

Should you invest $1,000 in Micron Technology right now?

Before you consider Micron Technology, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Micron Technology wasn't on the list.

While Micron Technology currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

The Best High-Yield Dividend Stocks for 2024 Cover

Looking to generate income with your stock portfolio? Use these ten stocks to generate a safe and reliable source of investment income.

Get This Free Report

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Broadcom (AVGO)
4.9125 of 5 stars
$1,296.37-0.7%1.62%39.36Moderate Buy$1,005.95
Advanced Micro Devices (AMD)
4.414 of 5 stars
$176.52-2.9%N/A339.47Moderate Buy$179.06
Micron Technology (MU)
4.0511 of 5 stars
$86.00+0.1%0.53%-13.69Moderate Buy$94.95
Compare These Stocks  Add These Stocks to My Watchlist 

Gabriel Osorio-Mazilli

About Gabriel Osorio-Mazilli

  • gosoriomazzilli@gmail.com

Contributing Author

Value Stocks, Asian Markets, Macro Economics

Experience

Gabriel Osorio-Mazilli has been a contributing writer for MarketBeat since 2023.

Areas of Expertise

Value investing, long/short trading, options, emerging markets

Education

CFA Level I candidate; Goldman Sachs corporate training; independent courses

Past Experience

Analyst at Goldman Sachs, associate at Citigroup, senior financial analyst in real estate


Featured Articles and Offers

7 Stocks to Help You Build Off January’s Gains

7 Stocks to Help You Build Off January’s Gains

It's frequently said that as January goes, so goes the market. If that's the case, it's time for investors to put money to work in the stock market.

Search Headlines: