Chipmaker Likely to Outperform Sector

07/29/2020 9:16 am EST


Joe Duarte

Editor, Joe Duarte In the Money Options

Joe Duarte shares the one stock in the semiconductor space like to outperform.

Shares of logic chipmaker Xilinx (XLNX) bucked the general downtrend in the semiconductor space with good reason (see chart below). In its last quarter the company made it clear that it was unsure of its business due to Covid-19 and was going to focus not just on growing the business, but on capital preservation while giving very conservative guidance for the next quarter but no guidance for the full year.


However, given the action in the rest of the industry where most companies have delivered better than expected earnings, it seems likely that Xilinx will likely deliver good news for the current quarter when it reports on July 30. That said, much of what the price of the stock does after its earnings will be about its future guidance, which brings me to potentially good news.

Logic chips are very flexible chips, meaning that they are sort of a blank slate that can be programmed, even in the field to perform specific functions. As Covid-19 has proliferated, so has the demand for computing power. This has likely increased demand for logic chips to be used as companies increase their communication and server needs.

The stock is in a bullish and steady rise at the moment, trading above its 20- and 50-day moving averages, placing it in the complexity zone, where stock prices tend to rise. Moreover, Accumulation Distribution (ADI) and On Balance Volume (OBV) are moving higher in a pattern that suggests the stock is under long-term accumulation. While the stock is not close to overbought yet, if XLNX can move above $107 in the short term, the odds favor an acceleration of its uptrend.

I own shares in XLNX.

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