With less than 5% to go after Tuesday’s session, shares of Xilinx (NASDAQ: XLNX
) are right within touching distance of their pre-COVID highs set in January. If they can make up the difference and push on, they’ll join an illustrious band of leading stocks that have come out of this pandemic stronger than when they started
The San Jose based semiconductor company has been rallying steadily since the lows of March with shares now up a full 44%. A 7% jump on Tuesday alone puts them at a post-coronavirus high which will offer some comfort to investors who are surely starting to get nervous about a second coronavirus wave breaking and the associated weakness in equities.
Yesterday’s jump was largely driven by a rise in forward guidance by management who lifted their fiscal Q1 revenue estimate, four weeks out from when the official earnings report is expected. They noted that their Wired and Wireless Group and Data Center Group are performing much better than expected, to the extent that they are more than making up for any coronavirus related damage or weakness in their consumer-focused markets.
This ties in with a trend that we’ve seen across the tech industry in recent months. Many B2B tech companies whose offerings are crucial to the day to day running of other B2B tech companies have seen an upsurge in demand and their stocks are reflecting that. Xilinx is no different.
Glass Half Full
In particular, President Trump easing restrictions on Chinese smartphone maker Huawei, who are a major partner of Xilinx’s seems to have lit the match. CEO Victor Peng noted how “a portion of the revenue strength in the quarter was due to customers accelerating orders following recent changes to the U.S. government restrictions on sales of certain of our products to international customers."
After management’s update on Monday night, Tuesday was bound to be a good day but sell-side analysts were out fast with upgrades that added fuel to the fire. Rosenblatt upped their price target on the stock from $105 to $120 while reiterating their Buy rating. They said the comments from management indicate that "demand trends are recovering more broadly and that we have likely hit a bottom in 1H20 in terms of the COVID-19 dynamic."
Jefferies upped their target to $115 from $105 and said that management’s comments were "consistent with our view that its communications business had reached a cyclical trough." Investors certainly bought into the hype and bid the stock up to one of its best days in weeks.
Competition Doing Well
The fact that one of Xilinx’s top competitors, Micron (NASDAQ: MU), crushed analyst expectations for their fiscal Q3 earnings which were released on Monday, did no harm at all either. Confidence is rising in the industry and with another four weeks to go until Xilinx release their next earnings report, the hype can only get bigger.
Investors will be hoping for a night and day difference from the company’s last report, released in April, which showed revenue contracting 9% year on year as EPS missed expectations. While that will hopefully be a flash in the pan, at the time management took it pretty seriously. They went so far as to lower forward guidance on this coming quarter’s revenue, driven in a large part no doubt by the fact that their Wired and Wireless Group, which makes up 24% of total revenue, shrank 46% year on year.
With this week’s update undoing that doom and gloom message, shares look like they’re keen to make up for any stunted growth in the meantime. Micron shares are easily outpacing Xilinx’s since the middle of March, up 50% to Xilinx’s 30%, so provide a good target for the latter’s investors to aim for.
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