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Semiconductor stocks are as popular as ever to start 2024, with industry juggernaut Nvidia (NVDA) now officially worth more than Amazon (AMZN). But while some artificial intelligence (AI)-fueled chip stocks have seen their valuations soar, other semiconductor players have pulled back this year. Should investors try to follow the momentum - or buy the dip?
Insider buying activity is one way to narrow down the field of prospective semi stocks to buy. While company insiders - a group that includes executives, board members, and shareholders of 10% or more - might sell their stock for any number of reasons, legendary investor Peter Lynch would tell you they typically buy shares only when they think the price is going to rise. For investors who like to “follow the money," insider buying can be a compelling bullish indicator.
With that said, here's a closer look at three semiconductor stocks that company insiders have been buying with their own money this February.
Semiconductor Stock #1: Super Micro Computer
Super Micro Computer Inc. (SMCI) is making waves in the high-performance server market, catering to everything from cloud computing to big data. Lately, the company has been experiencing ramped-up demand for its server solutions, thanks to the rapid adoption of AI.
SMCI has gained a remarkable 737% over the past 52 weeks, outperforming the rest of the market by an impressive margin.
Board member Fred Chan, a company director since 2020, has been a buyer of SMCI since the shares were trading at $75 back in 2022. That's why it's worth pointing out his most recent purchase of 2,000 shares on Feb. 1, when SMCI was trading at $568. The transaction totaled $1.136 million, and the shares have already gained 41.4% in the roughly two weeks since.
Financially, SMCI is on fire. In the most recent earnings report for Q2 2024, revenue of $3.66 billion and adjusted EPS of $5.59 both topped analysts' expectations. The company also hiked its full-year revenue guidance to a range between $14.3 billion and $14.7 billion.
In terms of valuation, SMCI is trading at 3.88 times forward sales and 46.45 times forward non-GAAP EPS, which isn't particularly cheap. However, the PEG ratio of 1.00 suggests Super Micro stock is still reasonably priced, in terms of growth expectations.
Analyst sentiment is mostly positive, with 5 out of 7 rating SMCI a “Strong Buy,” one a “Hold,” and one a “Strong Sell,” leading to a “Moderate Buy” consensus overall.
In new coverage late last week, Bank of America set a Street-high price target for Super Micro stock of $1,040, with analyst Ruplu Bhattacharya suggesting that Wall Street is underestimating the market size for AI servers. That target implies expected upside of 29.5% to Friday's close.
Semiconductor Stock #2: Wolfspeed
Wolfspeed Inc. (WOLF) is a global leader in silicon carbide chip technology and production, providing solutions for electric vehicles (EVs), fast charging, renewable energy, and aerospace and defense applications. Formerly known as Cree, the $3.5 billion company is based out of North Carolina.
WOLF stock has been one of the laggards in the semi space this year, and the shares are now down more than 38% on a YTD basis.
Given its relatively higher exposure to the softening EV industry - as opposed to SMCI's foothold in the booming AI space - WOLF has been out of favor with investors in 2024. And the shares sold off on Feb. 1 after the company's fiscal Q2 earnings results, even as quarterly revenue of $208.4 million topped expectations. Instead, markets responded to the company's weaker-than-forecast guidance for the third quarter.
The following session, three different insiders scooped up shares of WOLF stock on Feb. 2, with each transaction worth around $250,000. Board members Darren Jackson, John Replogle, and Stacy Smith all bought shares priced between $25.79 and $26.35, and the 29,450 shares they collectively purchased were the first insider buys on WOLF since Chair Thomas Werner picked up stock worth less than $22,000 last October.
WOLF shares are up 1.4% since the close on Feb. 2. On the valuation front, the stock is priced at 4.21x forward sales, which is a significant discount to its five-year average valuation premium.
Analysts are cautiously optimistic, with an average “Moderate Buy” rating among the 17 analysts in coverage. Eight are all in with a “Strong Buy,” 8 are on the fence with a “Hold,” and 1 is unconvinced, giving WOLF stock a “Moderate Sell.” The mean price target is $42.87, implying expected upside of about 59.4% from current levels.
Semiconductor Stock #3: Intel
Intel Corporation (INTC) is a tech giant that's nearly synonymous with semiconductors, and has long dominated the personal computing market - despite the persistent and growing threat from relative upstart Advanced Micro Devices (AMD). But as the old-guard tech stock appears to be falling behind some of its rivals when it comes to AI innovations, INTC is now valued at roughly $96.5 billion less than AMD by market cap.
As for INTC stock, it's down about 13% since the start of 2024, with most of the downside coming on the heels of its late January earnings report. Even though Intel topped both EPS and revenue expectations in its Q4 results, investors were less than enthusiastic about the company's guidance.
Specifically, INTC projected revenue of $12.2 billion to $13.2 billion for the first quarter. Analysts had their sights set a little higher, with Wall Street looking for Q1 revenue of $14.16 billion, on average.
On a Jan. 25 conference call accompanying the results, CEO Patrick Gelsinger addressed the light forecast, saying, “As we look into Q1, our core business, including client-server and edge products continues to perform well and is tracking to the lower end of seasonal. However, discrete headwinds, including Mobileye, PSG, and business exits, among others, are impacting overall revenue, leading to a lower Q1 guide. Importantly, we see this as temporary, and we expect sequential and year-on-year growth in both revenue and EPS for each quarter of fiscal year '24.”
On Jan. 29, the CEO picked up 3,000 shares of Intel at $43.361 each, marking his first purchase of company stock since last November. The investment was worth $130,083 in total. Then, just days after rival AMD issued its own cautious guidance, Gelsinger made another purchase of 2,800 Intel shares at around $42.74 each. That Feb. 2 purchase totaled $119,672, and INTC is up 1.8% since then.
Analysts are giving INTC a collective shrug, with a consensus “Hold” rating among 33 analysts in coverage. The mean price target of $44.11 is just 1.4% above Friday's closing price.
What's the Bottom Line on Insider Buying for Semi Stocks?
Insider buying can be a compelling bullish signal, but it should be taken in context with other indicators. While some insiders may be acting on a strongly held belief that the company has a strategic edge to help carry the company's share price higher, in other cases, executives may also hit the open market to reassure on-edge shareholders. With this in mind, investors should always consider any insider buying activity in the context of recent corporate headlines, share price performance, the broader industry outlook, and - of course - the company's own guidance.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
