What’s With All the Chips?

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Back in 1995, semiconductors was the play of the town.  If you invested in Intel, Micron or National Semiconductors, you just couldn’t go wrong.  Then came the crisis, prices were reassessed, and the whole system was re-evaluated.  Intel (NASDAQ:INTC) ceased to be a growth stock, started paying a dividend and joined the Dow Jones Industrial Average.

Intel, along with Cisco Systems (NASDAQ:CCO), another casualty of the high valuations of the dot-com era, traded at a very repressed price for the better part of 15 years.  Suddenly, last year they both broke their long-term technical resistance, and began to rise.  The only other Dow component that has recently done a similar feat was Microsoft (NASDAQ:MSFT), and boy! it has gone up.

But back to semiconductors… the chips have been in the news relentlessly over the last few months, especially with Broadcom’s (NASDAQ:AVGO) botched purchase attempt of Qualcomm (NASDAQ:QCOM), but yesterday we heard some interesting news, Apple (NASDAQ:AAPL) will ditch Intel’s chips on 2020 in order to start using their own proprietary silicon on Macs.

Intel’s stock dropped a whopping 6%.  But is that logical? was there a fundamental motive for the drop, or was that just overreaction from a market that was already under pressure? I tend to think it was the latter.  The market has been extremely volatile lately, and yesterday’s drop is just another wild swing.

The truth is, Macs aren’t even 10% of Intel’s revenue, and generate even less than 1% of its profits.  I would expect an adequate valuation to prevail once the storm settles.

The earnings season is at the door, and we would hope to start seeing some solid profits from some of the major companies, and that should set the record straight in Wall Street.

Until then, toodles.

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