What Happened?
A number of stocks jumped in the afternoon session after President Trump announced Apple had agreed to design and manufacture chips with Intel in the United States, a foundry validation the market had been waiting on for over a year.
The deal served as a direct catalyst for Intel and lifted sentiment across the industry. Micron also added 7-8% after a coordinated wave of analyst price target hikes. Stifel, Wedbush, Deutsche Bank, and TD Cowen revised their models sharply higher reinforced by Apple CEO Tim Cook's acknowledgement that memory price increases have become unavoidable.
The macro backdrop also helped. The US and Iran released the text of a signed interim agreement extending the April ceasefire by 60 days, a development that Art Hogan of B Riley Wealth described as "usurping any negative sentiment brought about by a more hawkish Fed yesterday." Lower oil prices eased the inflation pressure that sent the market lower earlier in the week; for a sector carrying high multiples that compress when the risk-free rate rises, any relief on the rate-hike narrative matters.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Processors and Graphics Chips company Allegro MicroSystems (NASDAQ: ALGM) jumped 7.2%. Is now the time to buy Allegro MicroSystems? Access our full analysis report here, it’s free.
- Semiconductor Manufacturing company Lam Research (NASDAQ: LRCX) jumped 6.2%. Is now the time to buy Lam Research? Access our full analysis report here, it’s free.
- Semiconductor Manufacturing company Applied Materials (NASDAQ: AMAT) jumped 5.8%. Is now the time to buy Applied Materials? Access our full analysis report here, it’s free.
Zooming In On Allegro MicroSystems (ALGM)
Allegro MicroSystems’s shares are extremely volatile and have had 35 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 6 days ago when the stock gained 3.7% on the news that President Trump canceled planned military strikes on Iran and signaled a peace deal could be signed over the weekend.
Intel contributed an additional tailwind after Bank of America double-upgraded the stock from underperform to buy. War-driven inflation had lifted Treasury yields, compressing the valuations on capital-intensive chip stocks.
Separately, the Strait of Hormuz closure disrupted the chemical and specialty-gas supply chains that semiconductor fabrication depends on. Oil falling back toward $87 a barrel and the 10-year yield dropping would ease the knock on effects from both.
Allegro MicroSystems is up 118% since the beginning of the year, and at $58.55 per share, it has set a new 52-week high. Investors who bought $1,000 worth of Allegro MicroSystems’s shares 5 years ago would now be looking at an investment worth $2,205.
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