What Happened?
Shares of semiconductor designer Lattice Semiconductor (NASDAQ:LSCC) jumped 5.3% in the morning session as semiconductor stocks, especially the memory chip manufacturers, surged after Micron reported impressive fourth-quarter earnings results. Micron beat across most of the key metrics we track, including revenue, operating profit, and EPS.
Notably, the company recorded a whopping 93% revenue growth compared to the previous year, showing that the AI party is still ongoing. Micron attributed the outperformance to the growing demand for memory chips that power generative AI applications. Looking ahead, Micron provided strong sales and profitability guidance for the next quarter, which exceeded Wall Street's expectations. Overall, the result highlights the abundant growth opportunities for chip makers with technologies to accelerate the booming AI trend. After the initial pop the shares cooled down to $54.19, up 4.9% from previous close.
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What The Market Is Telling Us
Lattice Semiconductor’s shares are very volatile and have had 23 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 7 days ago when the stock gained 5% as markets roared back after an initially muted response to the Fed's rate cut, which sparked a renewed appetite for risk assets. While investors were expecting a reduction in rates from the US central bank, there was a bit of back and forth on whether the cut would be 25bps (a quarter percent) or 50bps (half a percent). The Fed ended up slashing its policy rate by 50bps (0.5%) to 4.75%-5.00%. This marks the first rate reduction in roughly four years.
The Fed--under Chair Jerome Powell--began raising rates to tackle inflation coming out of the COVID-19 pandemic when a confluence of supply chain disruptions, labor shortages, and stimulus spending caused inflation to run hot. Looking forward, the Fed signaled that more cuts are possible in 2024/25. Putting it all together, the announcement and outlook provided a breath of fresh air and a clearer view of the Fed's monetary policy stance, which the market has been waiting for with bated breath. If there's anything the market doesn't like, it's uncertainty.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. The result of lower interest rates, all else equal, is higher stock valuations. This is especially true for higher-growth stocks such as those in the technology sector, where the current value depends more on cash flows many years out in the future.
Lattice Semiconductor is down 20.8% since the beginning of the year, and at $54.19 per share, it is trading 36.9% below its 52-week high of $85.93 from September 2023. Investors who bought $1,000 worth of Lattice Semiconductor’s shares 5 years ago would now be looking at an investment worth $2,803.
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