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July 24, 2019, 2:47 p.m. EDT

Chip stocks head for record high after Texas Instruments earnings, ahead of Intel’s results

Texas Instruments stock surges to record, Teradyne stock jumps 20%

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By Wallace Witkowski, MarketWatch


Bloomberg News
A tech prepares a silicon wafer machine at one of the Texas Instruments semiconductor clean rooms.

Chip-related stocks climbed to record highs Wednesday following strong earnings from Texas Instruments Inc. and Teradyne Inc., and ahead of Intel Corp. earnings.

The PHLX Semiconductor Index /zigman2/quotes/210598361/realtime SOX -0.55%  rallied 2.8% to 1,617.59 in recent activity and was on track for its highest close since April 24 when it closed at 1,589.02, capping a run of six closing highs in a row. In comparison, the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.19%  was down 0.5%, the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.0020%  was up 0.1%, and the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +0.07%  was up 0.4%.

Late Tuesday, Texas Instruments Inc. /zigman2/quotes/202237907/composite TXN -0.37%  reported quarterly results that topped Wall Street forecasts and issued an outlook that was better than feared. Texas Instruments shares rallied 7.5% to $129.02 in recent activity, having touched an intraday high of $129.80, and were on their way to closing at a record high.

Evercore ISI analyst C.J. Muse, who raised his price target to $125 from $115, noted the stock was finding a catalyst in management comments that the company was three quarters into a cyclical downturn that usually lasts four to five quarters and strong free cash flow.

“That said, we believe valuations are going from frothy… to more than frothy,” Muse said, stating that he was still keeping his in-line rating on Texas Instruments.

Jefferies analyst Mark Lipacis, who has a buy rating and raised his price target to $170 from $137, said Texas Instruments results showed that inventory problems that have plagued the chip sector all year are showing signs of easing.

“We continue to sense investor caution on semiconductor stocks, which we believe is rooted in inventory and demand concerns, and exacerbated by US - China trade issues,” said Lipacis. “We don’t believe most investors are positioned for an end to the inventory correction, much less the inventory restock we expect will manifest in 2H19.”

Of the 34 analysts who cover Texas Instruments, 12 have buy or overweight ratings, 20 have hold ratings, and two have sell or underweight ratings, with an average target price of $88.80, according to FactSet data.

Teradyne Inc. /zigman2/quotes/208321188/composite TER +0.41%  shares surged 20% to $57.63 in recent trading, after the electronic testing equipment maker’s quarterly results and outlook topped Wall Street estimates.

This all comes before Intel’s /zigman2/quotes/203649727/composite INTC -0.33%  earnings report, which is scheduled for the after the close on Thursday. Intel shares were up 1.7%.

Read: Rumored Intel sale of smartphone modem business to Apple weighs on Qualcomm stock

Meanwhile, research firm Gartner on Tuesday forecast that revenue from global chip sales will drop 9.6% to $429 billion in 2019, worse than its previous forecast decline of 3.4%.

“The semiconductor market is being impacted by a number of factors,” said Ben Lee, senior principal research analyst at Gartner, in a statement. “A weaker pricing environment for memory and some other chips types combined with the U.S.-China trade dispute and lower growth in major applications, including smartphones, servers and PCs, is driving the global semiconductor market to its lowest growth since 2009.”

In May, International Data Corp. said chip sales are expected to suffer a sharp downturn in 2019, while IHS Markit recently said the sector is facing its worst downturn in a decade. Most recently, the Semiconductor Industry Association said that global chip sales declined for a fifth straight month in May.

Other strong chip stocks on Wednesday were Silicon Laboratories Inc. /zigman2/quotes/202999406/composite SLAB -1.66%  , ON Semiconducotr Corp. /zigman2/quotes/202641012/composite ON -0.56% , MKS Instruments Inc. /zigman2/quotes/208573663/composite MKSI +0.83%  , and Microchip Technology Inc. /zigman2/quotes/208326291/composite MCHP -1.15% , and Monolithic Power Systems Inc. /zigman2/quotes/204177258/composite MPWR -1.26%  

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Wallace Witkowski is a MarketWatch news editor in San Francisco. Follow him on Twitter @wmwitkowski.

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