At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
Happy days are here again!
At least, they are for Advanced Micro Devices (NYSE: AMD ) shareholders. Yesterday saw Wall Street analyst Bernstein do a complete 180 on AMD stock, reversing its previous "underperform" position, granting AMD an "outperform" rating, and more than doubling its price target on the stock, all the way up to $12.
And that was only the beginning of the good news.
As fellow Fool Eric Jhonsa discussed yesterday, the big news of the week was what helped inspire Bernstein's double-think: To wit, Intel's (Nasdaq: INTC ) decision to abandon its ballyhooed Larrabee graphics chip and leave the stand-alone graphics processing market entirely to AMD and NVIDIA (Nasdaq: NVDA ) . Logically, that should be a plus for Intel's rivals. But is Bernstein being a bit too exuberant here?
Let's go to the tape
Judging from the analyst's past performance in this sector, there's reason to hope. For while Bernstein isn't exactly the greatest investor we've ever seen on CAPS (and is particularly bad in the oil patch, where a series of ill-considered endorsements of stocks like Tesoro (NYSE: TSO ) and ExxonMobil (NYSE: XOM ) have Bernstein getting just 10% of its oil recommendations right), semiconductors appears to be one market niche where Bernstein knows its stuff:
|
Stock
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Bernstein Says
|
CAPS Says
|
Bernstein's Picks Beating (Lagging) S&P by
|
|
ASML Holding
|
Outperform
|
***
|
49 points
|
|
Texas Instruments (NYSE: TXN )
|
Outperform
|
****
|
6 points
|
|
National Semiconductor (NYSE: NSM )
|
Underperform
|
**
|
5 points
|
On the other hand, Bernstein hasn't done so well with the lead actor in yesterday's drama. Its sell rating on Intel, which dates to November 2006, still lags the market by 21 points. A Fool can be forgiven for wondering whether Bernstein has fallen prey to "confirmation bias" -- and is overestimating AMD's chances based on its historical pessimism about Intel.
Rational exuberance
Intel's surrender sure sounds like reason for AMD shareholders to rejoice... but might they be jumping the gun? More than a few investors think so -- including yours Fool-y.
Consider what Intel actually said about the Larrabee "cancellation":
- "[O]ur first Larrabee will not be launched as a stand-alone discrete graphics chip ... Rather it will be used as a software development platform." [emphasis added]
- Intel will discuss "additional plans around our discrete graphics products" next year.
I ask you: Does this sound like Intel is getting out of the stand-alone GPU game entirely? Because to me, it sounds more like a hiccup in Larrabee's development has only delayed the introduction of a "second" Larrabee chip. Parsing Intel's comments, Barclays Capital – an analyst with an even better record in semis than Bernstein boasts -- came to a similar conclusion, opining: "Intel sees Larrabee as a strategic opportunity to position it as Intel's integrated graphics product for its future generation CPU + GPU core." Intel is "likely to continue investments in graphics and multicore parallel processing."
Foolish takeaway
In other words, this is a delay, not a cancellation -- and as such, any gains AMD makes in the short term may prove fleeting.
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