Chipmakers in the Spotlight as Intel and AMD Get Set to Report

by Rick Pendergraft | April 17, 2012 7:00 am

[1]Over the next few days, two of the world’s largest semiconductor manufacturers will release first-quarter earnings results. Intel (NASDAQ:INTC[2]) will release Tuesday evening after the closing bell and Advanced Micro Devices (NYSE:AMD[3]) will release results Wednesday evening.

Both INTC and AMD have performed well since the October low, with INTC gaining 38.5% and AMD gaining an incredible 70.6% in just over six months. With this performance from the stocks comes a higher hurdle for the company and their earnings results.

The sentiment toward each of these companies is rather middle-of-the-road despite the recent rally. The analyst ratings for INTC show 23 “buy” ratings, 26 “hold” ratings and four “sell” ratings. For a large-cap tech stock that has gained 38% in six months, these ratings are not nearly as bullish as I would have expected. The same can be said for AMD as they have 15 “buy” ratings, 13 “hold” ratings and five “sell” ratings.

The analyst estimates for each of the companies have been steady as the consensus estimates have not budged from 60 days ago. For INTC, analysts expect the company to earn 50 cents per share for the quarter on revenue of $12.84 billion. AMD is expected to earn nine cents per share on revenue of $1.56 billion.

The one area where investors have shown an increase in bullish sentiment for Intel is in the options market. In the last six months, the open interest put/call ratio for the company has fallen drastically and recently hit its lowest level for the past year. Advanced Micro saw its open interest put/call ratio fall as well, but not as drastically as Intel’s.

Neither company has had a discernible pattern in terms of reactions after earnings over the past year. Both companies have beaten their estimates each of the last four times, but in some instances the stocks rallied and in some cases they fell.

My concern right now is the overall market tone towards tech stocks. Companies like Apple (NASDAQ:AAPL[4]) and Google (NASDAQ:GOOG[5]) are getting taken down rather sharply. Apple hasn’t even reported yet, and yet they have lost 9.6% from their high to their low in the last four days.

Google reported earnings last Thursday evening and beat on the earnings side as well as the revenue side. Despite this feat (as well as a stock-split announcement), the stock has declined 7.9% from its high to its low in the last three days.

Perhaps I am being overly cautious, but right now it seems as though large-cap tech stocks are in the crosshairs of the bears. Before investing, you need to ask yourself: is the reward worth the risk?

 As of this writing, Rick Pendergraft does not own any shares mentioned here. 

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