Harriet Lefton

About the Author Harriet Lefton

Harriet originates from the UK where she worked as a journalist specializing in the metal markets. She graduated from the University of Cambridge before becoming a qualified UK lawyer.

Polar Capital’s Top Q4 Portfolio Moves: Advanced Micro Devices, Inc. (AMD), Micron Technology, Inc. (MU), NVIDIA Corporation (NVDA)

Hedge fund Polar Capital, which has a $6.2 billion portfolio value, is bullish on three key semiconductor companies, according to 13F forms filed with the SEC and recently made public. These forms show the fund has increased its exposure to Advanced Micro Devices, Inc. (NASDAQ:AMD) and Micron Technology, Inc. (NASDAQ:MU) as well as graphics card maker NVIDIA Corporation (NASDAQ:NVDA).

The UK-based fund, founded back in 2001 by Brian Ashford-Russell and Tim Woolley, uses a fundamental research approach to select a diverse range of assets. However, the fund’s main focus- over and above the gathering of assets even- is actually investment performance. According to Polar, “there is an alignment of interest between the investment managers we recruit, their focus on delivering superior returns and the interests of professional and institutional clients who are seeking differentiated investment products.”

The fund recently put this mantra into practice when it recruited a new CEO, former JO Hambro Capital Management (JOHCM) boss Gavin Rochussen, to replace Tim Woolley in July. Shares in Polar Capital rose on the news as Rochussen has a strong track record; growing JOHCM assets under management (AUM) from £1.5 billion in 2008 to £23.9 billion in 2016. As part of his incentive package, he will receive £3 million of Polar Capital shares.

No doubt it is hoped that Rochussen will improve the fund’s recent performance. Profits fell 22% on £763 million of net outflows following a ‘challenging’ six months to the end of September 2016. Tim Woolley explained that Brexit and US election both shocked the market but that ‘Our fund inflows have picked up markedly since the US election with inflows into a wide range of funds.’ He added that new recruits, including Miton duo Georgina Hamilton and George Godber, could make a “significant” contribution from about fiscal 2018.

In the meantime let’s check out some of the fund’s key Q4 moves:

Advanced Micro Devices, Inc.

Polar increased its AMD holding by 36% to 3.7 million shares valued at $42.6 million. The semiconductor maker’s share price has exploded from under $2 at the beginning of last year to current prices of closer to $14. In early March, AMD launched its much-anticipated Ryzen 7 processor- drastically undercutting the price of larger rival Intel’s comparable hardware. Now the Ryzen 5 processor is set to launch on April 11. At just $249, the Ryzen 5 1600X will feature AMD’s powerful new Zen architecture along with a six core, twelve thread CPU.

However, while all this sounds very promising the rising short interest in the stock should not be ignored. Short interest in AMD has now passed the 100 million share mark at around 115 million shares- up 62% since August 2016. In fact, despite the generally positive Ryzen reviews, short interest spiked by 10 million shares on the Ryzen launch at the beginning of March. And this short interest has withheld even though AMD has since been added to the S&P 500 list.

The average analyst 12-month price target for AMD on financial accountability engine TipRanks suggests a further downside of -15% from the current $13.70 share price. Nonetheless, five-star Jefferies analyst Mark Lipacis, who reiterated his buy rating on March 27- remains much more bullish on the stock with a $16 price target (17% upside).

Micron Technology, Inc.

Polar upped its Micron exposure by 4% to 1.9 million shares worth $42 million. The Memory chip maker is currently one of the best-rated stocks on TipRanks with a strong buy analyst consensus rating and upside potential from the current share price of 24%. Seventeen analysts have published buy ratings on the stock in the last three months, with no sell ratings and only one hold rating.

The market was very impressed by Micron’s phenomenal 2Q results which have soared due to strong demand and limited supply in the DRAM market (dynamic random-access memory) and falling costs for Micron’s NAND chips. The results, released on March 23, show GAAP net income of $894 million (vs just $180 million in Q1), non-GAAP EPS of $0.90, almost triple the previous quarter, and a strong GAAP operating margin of 22.4%. Even better, Micron is predicting an even more impressive third quarter with revenue of $5.2 billion – $5.6 billion and non-GAAP EPS between $1.43 and $1.57, although, ultimately investors are aware that these kinds of results are unlikely to keep improving once supply catches up with demand.

NVIDIA Corporation

In Q4, Polar initiated a new position in Nvidia with the purchase of 135,216 shares valued at $19.7 million. Earlier this month, Nvidia launched its GTX 1080 Ti graphics card. However, there are concerns that the demand for video cards is not as strong as it once was- and that this could lead to a price war between Nvidia and rival AMD- especially as AMD is due to launch its own powerful graphics card soon.

Last year saw robust demand for graphics cards as consumers updated their PC hardware to complement Facebook’s new Oculus Rift VR headset and HTC’s Vive. This created a stellar Q3 for Nvidia, which it followed up with a similarly strong Q4. But now DigiTimes reports that demand for graphics cards has deteriorated significantly in 2017 even when factoring in Nvidia’s new GTX 1080 Ti. It reports that Asustek Computer and Gigabyte Technology are expected to ship under four million motherboards each in Q1, the lowest quarterly record in recent years, (so fewer graphics cards will be installed), while demand for video cards is weakening, particularly in China. As a result, prices are being discounted with Nvidia’s GTX 1080 graphics cards down from US$699 to US$499.

The stock has a moderate buy analyst consensus rating on TipRanks with 13 buy, 9 hold and 4 sell ratings published on the stock in the last three months. Despite the moderate buy rating, the average analyst price target of $116.20 represents a respectable 7.9% upside from the current share price of $108.

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