VIDEO: Our Plan for This Chip Company and Why We’re Keeping Tabs on Intel (original) (raw)

In today’s Daily Rundown video, Chris Versace explains why short covering could lead the Portfolio to lock in some gains following Marvell’s (MRVL) earnings report.

"We continue to like Marvell for the medium to longer term, no question," he said. "But I also wanted to be clear: Even though we do like Marvell's story ... we have to be prudent managers of the Portfolio."

Versace also discussed some potential events unfolding at Intel (INTC) and what they could mean for semiconductor capital equipment demand and our shares of Applied Materials (AMAT) .

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here. Happy Friday. And we do have a long weekend coming up. Markets are closed. Or I should say, US equity markets are closed on Monday to observe the Labor Day holiday. And coming off this most recent wave of earnings, including NVIDIA and Marvell for the portfolio, as well as today's July PCE data, which was pretty much in line with expectations and doesn't disrupt any of the comments that Fed chair Powell made at Jackson Hole, we're likely to see things quiet down and trading volumes really start to wane in the afternoon ahead of the three-day weekend.

Not much of a surprise. Volumes have typically been a little bit lighter this week as folks squeeze in that last round of summer vacation. And I expect that ahead of the three-day weekend trading desks will be thinning out as well. But for your reading pleasure today, our alerts are focused in on Marvell's earnings and how our thesis for that particular company is playing out rather nicely.

AI and data center ramped significantly year over year. Nice sequential growth, and it's poised to accelerate further in the back half of the year as its proprietary AI chip programs-- we've talked about them before with Meta, with Amazon, and eventually Microsoft-- start to ramp. So that's going to be very, very positive for Marvell and its largest business.

But the company also called the bottom in two other businesses-- its enterprise networking business and its carrier infrastructure business. Our thinking has been that we would start to see that business pick up as AI adoption accelerates. So management's comments are in line with our thinking. We do see that accelerating further into 2025, remember, as AI adoption in the enterprise grows and we start to see AI adoption on device, PC, smartphone, tablet, that sort of thing really congesting networks.

So we continue to like Marvell for the medium to longer term, no question. We are seeing a little bit of pop in the shares today. It is a combination of the positive outlook, but also some short covering. We touched on it in the note. But I also wanted to be clear that even though we do like Marvell's story, medium term, long term, we have to be prudent managers of the portfolio.

So if we see that short covering pop Marvell shares either way into overbought territory or if the position size balloons something greater than 4.5% of the portfolio's assets, we might have to do some prudent portfolio management. So I'm just giving you the heads up on that. It may not happen. But if it does, I want you to be prepared. I don't want you to be caught off guard if we're trimming back-- ringing the register on a 1-rated position.

Also today, I wanted to touch a little bit of what's going on with Intel. Now, this is not a name that we own in the portfolio. But we do pay attention to its comments about its various end markets, PC data center, but also what it has to say about capital spending, because that is a driver of semiconductor capital equipment demand. And we pay attention to that because of our position in, you guessed it, Applied Materials.

Now when it comes to Intel, I don't think there's any question that that company is simply a mess. And we know that it is working with advisors to figure out some sort of strategic plan. We shared that with you when it hired our own Morgan Stanley to help it work through things and fend off any potential activist investors. We do think that's another positive for Morgan Stanley, but here we're talking about Intel and connecting that to Applied Materials. So what's going on?

Well, we are reading reports that there are a couple of different plans being considered for Intel. One would be the possible spin-out of its foundry business. This is one that Intel has been hoping to compete with Taiwan Semiconductor and others. So if they do spin it out, that would be a positive for Applied Materials, I would say, and overall semiconductor capital equipment demand because the foundry would have to increase its capacity, and that would be a good thing.

But on the other hand, there are some other reports saying that Intel might really take a hatchet to its capital spending programs, just kind of dealing with the existing capacity that it has. Now that would not be good for Applied Materials, but it wouldn't be damaging. It wouldn't be a catastrophe.

Why do I say this? Well, because Applied Materials only counts Intel as a sub-10% customer. Its bigger customers are Samsung and Taiwan Semiconductor, both of which are continuing to add incremental capacity. We know the reasons for this. We've talked about them. But for those who are new to the story, AI, data center, rebounding smartphone, rebounding PC markets, continued growth in automotive semiconductors-- that's all driving capacity levels higher. There's also the rebound in the memory market, which is also driving capacity levels higher, necessitating fresh capacity.

Let's remember too, that TSM is taking advantage of the CHIPS Act, and they will have a foundry coming on in the States later. So all of that spending is one of the things that keeps us bullish on Applied Materials. But if you've been paying attention to the share price for AMAT, it is kind of flirting with our panic point around the $195 level. So our plan is to keep a close watch on that and really dial in to what Applied Materials' management team has to say next week on Wednesday when it participates in the start of the September investor conference series.

Would we like to pick up more shares of Applied Materials? We would. But we want to make sure that there's enough upside demand in the shares to warrant it. We will be paying very close attention, therefore, to what Applied's management team has to say about the back half of the year. If the outlook is continuing to be vibrant, it could be a reason for us to pick up some-- it could be a reason, excuse me, for us to pick up some incremental shares.

Now, that is Wednesday. Next week is going to be a very busy week, compressed into four days again, because we have the Labor Day holiday on Monday. Across that data, it's going to be filled with fresh insights for the economy on the month of August. It's going to help shape-- potentially reshape expectations for what the Fed is going to do when it culminates its policy meeting on September 18. I'll be previewing what we're looking for in terms of the data later in today's monthly roundup, and we'll be discussing all of it as it unfolds in next week's videos.

And let's close out on this. Because we're heading into the last holiday weekend of the summer, today is National Beach Day. Perhaps that's why I have a brighter than usual attire on. Maybe. We'll see. But I would suggest you rest up. We've got a busy week ahead. We are, when we come back, entering a sprint, some would say, to the end of the year. But as you know, we will be staring down what is typically one of the most challenging months for the stock market. Yes, I'm talking about September, my own birth month.

So enjoy the weekend. Have some fun, but be ready to come back and just join us getting back to work. We'll have plenty of emails and alerts for you to chew through, sharing our latest thoughts. But again, for now, enjoy the long weekend, and we'll see you back here next week. Thanks for watching.

At the time of publication, TheStreet Pro Portfolio was long MRVL and AMAT.