As of last year, the hedge fund machine Dmitry Balyasny founded in 2001 – Balyasny Asset Management (BAM) – was managing a monster $12 billion in assets. In the second quarter, it appears the guru saw fit to dial up the heat in two of the chip sector’s biggest giants.
Just consider BAM’s recent quarterly moves in the semiconductor space: an upbeat 1,119% jump in Micron (NASDAQ:MU) and a fresh new stake in Nvidia (NASDAQ:NVDA). It appears Balyasny spots full bullish steam ahead for these chip leaders. For an ace at macro investing– an expert trader unafraid of diving into “misunderstood situations” of Wall Street – it’s always been a game of spotting the “short-lived” alpha. Do Micron and Nvidia signal alpha advantage ahead?
It may be tough for hedge funds to turn a profit in a fiercely “competitive” market- but Balyasny’s success boils down to a true instinct of survival. After all, this business “is ultimately good for survivors, and this trader intends to be one. In a letter to investors, Balyasny explained his sharp strategy for taking after the likes of Amazon in the hedge fund world. Amazon beats its competitors while keeping eyes always on the “long game.”
Starting humbly as a small Chicago office to now over 90 teams, the hedge fund titan went on to steer clear of the August 2015 market crash. To put it bluntly, Balyasny knows how to post solid returns- gains not restricted to the general stock market.
Let’s take a closer look at Balyasny’s confident plays in the semiconductor sector:
Micron Gets Juiced Up
How much more bullish is Balyasny on Micron? Based on the latest 13F forms filed with the SEC, the guru’s hedge fund firm bought 239,547 shares in the second quarter. Now, BAM holds a stake of 260,972 shares worth $13,685,000.
Macquarie analyst Srini Pajjuri echoes Balyasny’s positive sentiment on the chip giant, having recently reiterated an Outperform rating on MU stock. The analyst predicts Micron stock could run up to $80- a healthy 60% in upside potential.
True, the stock has been hit with some recent weakness, amid swirling concerns over odds for dipping average selling prices (ASPs) in DRAM memory. Yet, not only is Pajjuri unfazed, he sees this as a buyer’s advantage: any “pullback [is] an excellent opportunity.”
“We expect DRAM ASP to peak in 3Q18, but the stock is already reflecting >30% ASP decline in the next 12 months, which we believe is overly pessimistic. While DRAM supply appears to be easing in 2H18, we see downside risk to industry supply growth expectations for 2019 both in DRAM and NAND. At 4x PE (1.8x PB), MU not getting any credit for structural margin expansion, much stronger balance sheet, and aggressive cash returns,” writes the analyst.
Moreover, Pajjuri spots encouraging growth in store here: “Crypto weakness & China tariff concerns notwithstanding, we expect 20%+ demand growth to sustain driven by healthy data center spending and secular content growth in servers. Premium smartphones are adopting 8/10GB and we also expect DRAM content to increase in upcoming iPhones.”
Looking ahead, the analyst sees confidence making a comeback for Micron: “We expect sentiment to improve in the coming months on strong Aug-18Q results, $10b buybacks (start in Sep), and as evidence of more gradual DRAM price declines emerges.”
TipRanks shows Wall Street backs Balyasny’s and Pajjuri’s confidence on Micron. Our data reveals an analyst favorite here- a ‘Strong Buy’ stock that has 16 bulls in its camp over the last three months. The 12-month average price target of $83.10 reflects robust upside potential ahead: a whopping almost 67%.
A New Bite into Nvidia
Nvidia must have exhibited new compelling potential to Balyasny in the second quarter. After all, the hedge fund guru guided his firm to initiate a fresh stake of 23,502 shares in Nvidia worth $5,568,000. How does this measure up against the word on the Street?
Wells Fargo analyst Aaron Rakers also just got bullish on Nvidia as well- which is quite a dramatic leap over from the bearish camp. The analyst upgraded NVDA stock from Underperform to Outperform while massively lifting the price target from $140 to $315. In other words, Rakers spotlights nearly 18% upside potential ahead for Nvidia. (See Aaron Rakers’ other stock recommendations)
“We are positive on NVIDIA’s competitive positioning for gaming and expanding growth opportunities in data center, HPC, and emerging / expanding AI opportunities (autonomous vehicles, healthcare, robotics, etc.),” cheers the new bull.
Any “concerns over gaming GPU channel inventory levels vis-à-vis weakening crypto-currency mining demand are well-understood and miss the long-term architectural shifts and secular growth drivers moving in NVIDIA’s favor,” adds Rakers.
Moving forward, the analyst is enthusiastic on the chip giant’s eight-generation Turing graphics architecture along with a new Quadro RTX product cycle starting in the fourth quarter.
Bottom line: the analyst contends, “NVIDIA is well positioned to continue to leverage / expand its platform story.”
Market data on TipRanks reveals consensus pegs Nvidia as a ‘Moderate Buy’ stock. In the last three months, the chip giant has scored 17 bullish recommendations from best-performing analysts- with 7 analysts hedging their bets on the sidelines. Consensus expectations suggest a positive overall story. The 12-month average price target stands at $291.43, marking close to 10% in upside potential for Nvidia stock.