Analysts, as always, are re-appraising some major stocks right now. And for many stocks, including Amazon (AMZN), Yahoo (YHOO) and Intel (INTC), those re-appraisals haven’t been so flattering.
With the NASDAQ Composite down this year — it’s off some 2% — let’s take a look at why these big tech stocks are losing favor with the analysts on Wall Street.
Intel (INTC)
Last week, Intel stock was downgraded from market perform to underperform by analyst Stacy Rasgon at Bernstein. Rasgon lowered the price target to $26. The stock is currently trading above $32, so if INTC were to fall in line with Rasgon’s predictions, INTC investors would see roughly 20% losses.
Rasgon noted that:
“Intel’s PC growth trajectory remains challenging with new products having little to no impact on demand, and datacenter appears to be weakening meaningfully vs the company’s long term goals. Additionally, we believe a meaningful reset to full-year estimates is possible when the company reports earnings in April. We rate the shares Underperform with a $26 target price.”
Intel stock peaked above $35 late last year only to fall below $29 in February. While it’s bounced off those February lows, INTC is still down 5% on the year, underperforming the NASDAQ by nearly 3 percentage points in 2016.
That said, rumors of INTC’s irrelevance are greatly exaggerated.
Intel is busy trying to drum up new business amidst stagnant PC demand. Some supply chain checks have indicated that Intel will produce about 40% of the Apple (AAPL) iPhone 7 modems, which would definitely be good news. INTC has been lagging behind rival chipmakers such as Qualcomm (QCOM) in supplying chips for smartphones. Intel is also working on making augmented reality headsets, recently invested in a robotics startup, and is hoping to win with the Internet of Things and 5G.
Yahoo (YHOO)
Yahoo stock was downgraded by Citigroup analyst Mark May last Tuesday, mainly because YHOO has had an incredible run in the past month, rising from below 33 to over $36 a share. May thinks that the possibility of future gains is now reflected in the YHOO’s share price and there is now little upside.
Yahoo is currently exploring the possibility of selling off its core business, Internet search. CEO Marissa Mayer is facing pressure to sell from Starboard Value LP, and the hedge fund is seeking control of Yahoo’s board via a proxy fight. The potential buyers include telecom giants such as Comcast (CMCSA), Verizon (VZ) and AT&T (T), publisher Time Inc. (TIME) and private equity firms such as Silver Lake and TPG.
Essentially May is saying that while there’s no shortness of interest, that doesn’t mean YHOO is a steal.
Amazon (AMZN)
Amazon logo
Analysts at Raymond James and Oppenheimer reduced their price targets for AMZN stock last week. Raymond James analyst Aaron Kessler cut his price target for AMZN to $655, citing concern over Amazon’s margins.
Amazon Web Services, one of Amazon’s fastest growing and most profitable business segments, is facing increasing competition from Alphabet Inc‘s Google (GOOG, GOOGL) in the cloud computing industry. Google is getting aggressive in promoting cloud computing and seeks to catch up to Microsoft (MSFT) Azure and Amazon Web Services. GOOG has won important new customers recently, including Spotify and Apple. It should be noted that AWS still dwarfs Google in the cloud computing industry, with AWS holding a 30% market share. Google, on the other hand, only commands around 5% of the market.
AMZN also faces pressure from rising shipping costs, which is spurring the firm to build its own transportation network. However, one should be careful betting against Amazon, as Jeff Bezos has defied skeptics time and again. Amazon is able to tolerate razor-thin margins in pursuit of revenue growth.
Be careful putting too much stock in Kessler’s price target cut: AMZN stock still trades below $600 a share, which gives it decent upside to $655. Plus, the median target is $725 per share, giving it a good 20%-plus upside.
As of this writing, Lucas Hahn was long QCOM
