Semiconductor stocks, like the rest of the broader tech market, have been under heavy pressure in late 2018. A slowdown in the semiconductor market as well as the tariff wars between China and the U.S. have also affected sentiment in the sector.
Although many of these chip stocks, including Intel (NASDAQ:INTC), Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA), are much cheaper than they were at the start of September, investors should not expect the choppiness in individual share prices to be over yet.
Furthermore, the daily volatility of all three of these semiconductor stocks is high, giving each a broad trading range. As such, investors should expect to see wide daily price swings in these names during the final weeks of 2018.
INTC, AMD and NVDA shares have each been darlings of Wall Street until recently, but as we approach the end of the year, many analysts and investors are doubtful as to what is next for these stocks. Going into 2019, I believe investors will have to be more selective regarding which chip stocks they choose to invest in, as some are likely to do better than others.
With that said, here’s why you should consider these three semiconductor stocks to buy for success in 2019.
Of the three semiconductor stocks in this article, I am most bullish on INTC stock.
Intel’s earnings release on Oct. 25 showed robust top-line and data-center growth. Intel has been improving its competitive situation vis-a-vis other chip companies as the company continues to manufacture high-tech products ahead of the competition.
The technical chart for INTC stock is showing strength with more upside potential than downside risk. Long-term moving averages are giving a “buy” signal and share volume has been increasing on the days that the price has gone up — another bullish sign.
During the rest of the year, I expect INTC stock to trade between $44 and $54. Intel’s healthy dividend yield of 2.5% and on-going share buyback program are also likely to provide strong support for the Intel stock price in the weeks and months ahead.
Advanced Micro Devices (AMD)
Over the past years, investors in AMD stock have been delighted with the price performance of their shares. Advanced Micro Devices showed that it could be a direct threat to Intel in client computing and data-centers.
Intel’s price misery became Advanced Micro Devices’ price gain. However, the positive sentiment and hype surrounding AMD stock has now been replaced with a downtrend trend and negative momentum. In its earnings call on Oct. 24, AMD management stated that lower demand from cryptocurrency mining — once an overheated market — hurt its GPU sales and the tariff wars were impacting its revenues.
The technical chart for AMD stock is pointing to further price weakness in the coming weeks, and both the short-term and the long-term moving averages are giving a “sell” signal. As a momentum stock, there is a high probability that the share price may go down to $15 or even lower.
In the second half of 2019, I expect the AMD stock price to settle between $20 – $25. In the case of a swift resolution to the trade wars, the AMD stock price is likely to have about a rapid 10-15% move upward, which mainly makes it an appealing semiconductor stock for investors that are more risk adverse.
Nvidia, like INTC, has a robust data-center story. However, gaming — its most significant revenue contributor with a mid-priced product — is experiencing a slowdown and tariffs are also affecting NVDA stock negatively.
The company reports earnings on Thursday, Nov. 15, after the close of the market. The weak GPU channel sales reported by AMD in late October will probably come up in Nvidia’s earnings call and projections too.
Although NVDA stock has a good track record of beating expectations, I am not looking for a big move upward, nor am I expecting positive guidance. Therefore, I would avoid buying NVDA stock before the earnings call.
Based on the near-term option prices, I am expecting a drop in the stock of approximately 10% on Friday and next week. Moreover, the technical chart for NVDA stock — like that of AMD — still looks rather weak by most indicators, which points to a potential fall in the price of Nvidia stock to $145.
As such, patient investors who wait to get into NVDA shares later in the year are likely to have good returns in 2019.
The Bottom Line on These Three Semiconductor Stocks
All three chip stocks, INTC, AMD and NVDA, have strong fundamental growth prospects in the long-run, despite having come off significantly from their recent highs. Therefore, investors may start thinking about which shares they would like to see in their portfolio at these lower prices.
If I had to rank them, I would start the buying with Intel, followed by AMD and finally NVDA stock.
November does not yet seem to be a good time for entry into AMD stock or NVDA, but December may be a different story for these semiconductor stocks as investors may decide to step in from the sidelines.
Ultimately, investors should always base their decisions on individual risk/return profiles and remember that technology shares are not likely to have double-digit returns in 2019 while valuations and expectations become more rational.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.