Julie Lamb

About the Author Julie Lamb

Julie graduated with a Bachelor of Arts in English with a focus on creative writing from the University of Louisville.

Marshall Wace Bets Against Semiconductors: Advanced Micro Devices, Inc. (AMD), Micron Technology, Inc. (MU), NVIDIA Corporation (NVDA)

Paul Marshall and Ian Wace, co-founded their London-based hedge fund Marshall Wace in 1997, but have since run the gamut of success, landing on the Sunday Times Rich List of 2016’s top 11 wealthiest hedge fund managers in the UK. Last year was a golden year for the hedge fund, who also impressed Institutional Investor’s Alpha, scoring first place in their Hedge Fund Report Card survey.

Having built their triumphant over $7.7 billion-dollar hedge fund on a long and short equity-driven strategy, Marshall and Wace’s “long-only and bespoke investment solutions” saw a 30% boost in assets in 2012, and has continued to skyrocket since.

Interestingly enough, Marshall Wace has become less upbeat on semiconductors, choosing to lower stakes in the following three chip giants: Advanced Micro Devices, Inc. (NASDAQ:AMD) Micron Technology, Inc. (NASDAQ:MU), and NVIDIA Corporation (NASDAQ:NVDA).

Let’s explore why the hedge fund managers’ moves indicate they’re betting against the chip making sector:

Advanced Micro Devices, Inc.

AMD is determined to step up its competitive game against Intel, releasing its new Ryzen 5 series processors to score back a top role on the chip-making leaderboard. However, some tech experts are forecasting challenges with demand and constrained market share.

Marshall Wallace appears to give more credence to waning shipment concerns over the promising fresh line of products the chip giant just launched, cutting back 40% of its stake in AMD to 6,289,058 shares now worth $71,318K, according to the latest SEC filing.

How much of a dent will AMD’s Ryzens make in the market? There are two sides of the coin. While the London hedge fund investors are stalling a bit on the train tracks with regards to AMD’s prospects moving forward, there are those who believe CEO Lisa Su’s game plan to fare against Intel’s products at far more attractive prices stands as a bullish beg in favor of the giant’s future success.

Top analyst Mark Lipacis at Jefferies contends, “We have argued that AMD is in the early innings of its multi-year turnaround story, a strategy being executed upon by its new CEO,” the analyst wrote. “We think AMD’s ability to price between-the-seams while achieving competitive performance will result in meaningful share gains from (Intel) in the desktop, server, and notebook markets starting in 2017.”

Mark Lipacis has a very good TipRanks score with a 77% success rate and a high ranking of #3 out of 4,552 analysts. Lipacis garners 29.4% in his annual returns. When recommending AMD, Lipacis gains 63.7% in average profits on the stock.

Yet, Susquehanna analyst Christopher Rolland backs the hedge fund managers’ concerns, pointing to issues with Ryzen 7 chips that have suffered from a shortfall in compatible parts.

“We identified a few smaller PC makers that are selling Ryzen desktops, however, we believe they are just purchasing standalone processors and putting them inside pre-assembled PCs,” Rolland wrote. “No major PC OEM (HP, Lenovo, Dell, Asus) is currently selling Ryzen desktops. We estimate sales will begin in April,” explains Rolland.

Even the signals to be confident on AMD come with a fair share of uncertainty- which bolsters Marshall Wace’s act to reduce shares.

TipRanks analytics exhibit AMD as a Buy. Out of 19 analysts polled by TipRanks in the last 3 months, 9 are bullish on AMD stock, 9 remain sidelined, and 1 is bearish on the stock. With a loss potential of nearly 15%, the stock’s consensus target price stands at $11.75.

Micron Technology, Inc.

Micron’s fiscal third-quarter guidance for the year outclassed expectations, predicting the chip giant’s revenue will scale to the top of the high-end outlook. DRAM prices and NAND sales volume have been surging, with revenue rising to $4.65 billion last quarter hitting EPS of $0.90.

MU CEO Mark Durcan feels “proud” of his “team’s execution,” cheering NAND and DRAM “strong demand and limited industry supply.” Considering there has been a rising need for memory chips, the chip giant is racing on back of steep demand momentum, with gross margins a notable 20% higher than this time one year prior.

Yet, Marshall Wallace sees reason to play it safe. The hedge fund trimmed 8% of its holding in MU down to 259,073 shares worth $5,679K. Of the semi-conductor giants in the hedge fund’s holdings, Micron receives the most minor of pullbacks from the billionaire investors; but a reduction, nonetheless. Some investors fear this rise-and-shine parade for Micron might hit its peak soon enough.

Durcan acknowledges those operating under what-comes-up-must-come-down apprehensions, noting, “People are looking at the cycle and wondering, you know, are we getting long in the tooth, etc.” However, the CEO continues, “We’re not seeing that at all. … What’s driving this cycle, when you think about it, is broad-based demand across multiple market segments and, in particular, it’s content growth in all those segments, as opposed to particularly strong unit growth in one segment or the other.”

Micron is set to trounce expectations once again in the third quarter, potentially bringing in adjusted earnings between $1.43 to $1.57 per share on back of revenue ranging between $5.2 billion and $5.6 billion. Where Durcan anticipates “continued strong growth across almost every end market segment,” clearly Paul Marshall and Ian Wace perceive a Haley’s comet, racing with a fury through the sky, but with potential to burn out after the ephemeral flash.

TipRanks analytics demonstrate Micron as a Strong Buy. Based on 14 analysts polled by TipRanks in the last 3 months, all 14 rate a Buy on Micron stock. The 12-month average price target stands at $32.08, marking a 21% upside from where the stock is currently trading.

NVIDIA Corporation

Of all the semiconductors, does NVDA pose the most risk of all? Marshall Wallace seems to think so, having dumped a significant 74% portion of its holding in NVDA to a remaining 88,398 shares worth $9,436K.

This skepticism does not seem off base, taking under account NVDA CFO Colette Kress’ glimpse of wariness after letting go of 53,458 shares of the stock in a transaction just last Friday.

Recent news broke of rival Intel’s decision to takeover Mobileye NV, a chip maker in direct competition with NVDA in the automotive sphere.  Between the new Intel-Mobileye alliance coupled with Qualcomm as worthy opponents in the automotive market, NVDA will have its hands full trying to emerge on top in the wrestle for who wins as true leader.

From the eyes of Cowen analyst Timothy Arcuri, this is ultimately a “two horse race” in the autonomous vehicle rivalry, and it’s questionable now that NVDA is competing not just to beat Mobileye, but Intel for these “data centers on wheels.” Arcuri’s money is on Intel for the win.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, top five-star analyst Timothy Arcuri has achieved a high ranking of #87 out of 4,552 analysts. Arcuri upholds a 67% success rate and yields 18.2% in his annual returns.

TipRanks analytics indicate NVDA as a Buy. Out of 27 analysts polled by TipRanks in the last 3 months, 14 are bullish on NVDA stock, 9 remain sidelined, and 4 are bearish on the stock. With a return potential of 9%, the stock’s consensus target price stands at $117.10.


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