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What Caused AMD’s and Marvell’s Stocks to Outperform the Market?

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What drove semiconductor stocks in 2016?

In the previous part of the series, we saw that 2H16 witnessed some of the biggest M&A (mergers and acquisitions) in the semiconductor industry. This M&A activity pushed semiconductor stocks to new highs. While M&As may not create value for shareholders, they do tend to bring temporary rises in stock prices.

The biggest example of this was seen in 2016, when Qualcomm announced a merger with NXP Semiconductors (NXPI). This saw NXP’s stock rise 1.7% and Qualcomm’s stock rise 3.1%. 2016 started off with steep falls in semiconductor stocks, but things sped up in 2H16 as demand picked up.

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Top stocks of 2016

There were some big surprises in the semiconductor space in 2016. Advanced Micro Devices (AMD), which had been nearing bankruptcy, became a top performer, with a 309.4% increase in its stock price. NVIDIA (NVDA) saw a 229.7% rise, and Marvell Technology (MRVL) saw a 57.6% rise.

AMD

AMD’s stock rose in 2016, despite the fact that the company continues to post losses. Its licensing deal with China, its foray into virtual reality, and orders for game consoles raised hopes among investors for a better future. However, analysts believe that a 300% rise is too much for AMD, as the company is fundamentally weak due to its losses and huge leverage.

It’s possible that the stock will correct itself in 2017 if the company’s losses continue throughout the year and its new Zen and Vega chips fail to provide strong competition to Intel (INTC) and NVIDIA.

MRVL

Another success story in 2016 was that of Marvell, which saw negative press at the end of 2015 over an accounting scandal that saw its founders removed in April 2016. In 2016, the company’s new management took the helm and started reporting earnings. Management announced a restructuring plan and refocused the company’s business. This renewed optimism among investors, and the stock rose nearly 60% in 2H16.

Marvell is believed to be an attractive acquisition target. If it receives an offer, its stock could be set to soar.

Apart from these troubled stocks, a few stocks delivered strong performances driven by organic growth. We’ll discuss them in the next part of the series.

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