Mid-Cap Chip Designers Trade Near Highs; Outperform Broader Market

Chip designer Silicon Labs NASDAQ: SLAB is consolidating above its 50-day moving average after zipping 24.59% higher the week ended October 29. 

That big move came on the heels of Silicon Labs’ third-quarter report that topped analysts’ views. Revenue was up 39% from the year-earlier quarter, to $184.8 million. Earnings were down year-over-year but at $0.34 per share, results trounced Wall Street views, which is what caught investors’ attention. 

Shares closed Friday at $197.87, down 6.2% from their November 16 high of $210.98. 

According to MarketBeat data, analysts have a “buy” rating on the stock with a price target of $181.27, representing a downside of 8.39%. At this juncture, that would only put the stock a couple of percentage points below its 50-day average. 

Since the company’s earnings report, six analysts upgraded the stock or boosted their price targets. 

The company develops semiconductors, as well as software for a variety of industries, including automotive, consumer electronics, and Internet infrastructure. It focuses on mixed-analog signal products. Its main source of revenue is the U.S., although it also operates in China. 

Silicon Labs is not alone as a chip-industry company showing fundamental and technical strength as demand for chips soars amid a global shortage. The lack of chips, relative to what’s needed right now, has resulted in manufacturing slowdowns in the automotive and consumer electronics industries, among others. 

The Semiconductor Industry Association said last month that global chip sales totaled  $144.8 billion in the third quarter, up  27.6% from the year-ago quarter. 

According to the report, “More semiconductor units were shipped during the third quarter of 2021 than during any other quarter in the market’s history.”

Silicon Labs shares are currently in the buy range, as they hold above that 50-day line. The stock has been holding up nicely, despite choppiness in the broader market. 

Other chip design specialists showing strong technicals include MaxLinear NYSE: MXL. The Carlsbad, California company makes radio frequency and mixed-signal integrated circuits used in the satellite and broadband industry, as well as in data center and fiber network applications.  

The stock is up 36.33% in the past three months and 82.48% year-to-date. The stock has a market cap of $5.347 billion, so it’s apt to compare it to the S&P 400 mid-cap index, which is up just 1.39% in the past three months and up 19.42% year-to-date. 

With semiconductor designers being the top-performing industry in the past two weeks, and among the top five best performers in the past three months, those one-sided comparisons make all the sense in the world. 

In fact, other semiconductor stocks including Alpha & Omega Semiconductor NASDAQ: AOSL, Marvell Technology NASDAQ: MRVL, and Ambarella NASDAQ: AMBA are also trading in new high ground. 

MaxLinear has shown outstanding fundamental performance in the past five quarters, rebounding from slowdowns in both revenue and earnings that began in 2019, before Covid closures took hold. In fact, earnings declined in 2019 but rebounded again in 2020. 

Earnings grew at triple-digit rates in each of the past five quarters, while sales grew at double- or triple-digit rates. For the full year, analysts expect MaxLinear to earn $2.68 per share, triple last year’s earnings of $0.88 per share. 

Next year, that’s seen rising another 17% to $3.14 per share. 

One major caveat about MaxLinear: With a beta of 2.56, it can be highly volatile relative to the S&P 500. That’s something investors must always remember if opening a position in either a small- or mid-cap. 

The stock vaulted 17.88 on October 28 after the company’s better-than-expected third-quarter earnings report. In the earnings call, CEO Kishore Seendripu gave analysts and institutional investors extra reassurance, saying, "We see sustained momentum for our Wi-Fi products as operators address strong consumer demand for robust broadband access and connectivity services.”

MaxLinear closed Friday at $69.69, up $1.13 or 1.65%, on a day when the S&P 400 was down 0.49%.