Microsoft, Dell Moves Lead Us to Boost Our Price Target for This Chip Stock

* We are lifting our price target on Qualcomm shares to $230 from $210 following a wave of AI PC announcements.

* AI PC announcements from Microsoft, Dell, and others point to the AI-on-device upgrade cycle beginning, keeping us bullish on these two holdings.

* Earnings from Nvidia and the Flash May PMI reports will dictate the market's next move.

* Here’s our near-term plan for the portfolio.

While the S&P 500 was little changed yesterday, strength in Microsoft MSFT, Nvidia NVDA, and Apple AAPL shares led the Nasdaq Composite to hit an all-time high yesterday. While not quite overbought, the RSI level for the Nasdaq closed last night just under 68, while the one for the S&P 500 was above 68.

As both Nvidia and Microsoft made news late yesterday with AI-related headlines that drove their share prices higher, let’s remember that Microsoft’s Build 2024 conference begins today. This means we’re likely to hear even more about its AI efforts ahead of Nvidia’s earnings after tomorrow night’s close.

When we shared our game plan for Nvidia shares, we noted its quarterly earnings should be solid and while we expect good things for its outlook, with expectations running extremely high, there is some risk it could disappoint.

Findings from options analytics firm Trade Alert find Nvidia’s options are primed for an 8.7% swing in either direction by Friday, which implies a potential market cap swing of around $200 billion. To frame that, it’s larger than the market capitalization for about 90% of S&P 500 companies.

While the portfolio has a sizable position in NVDA shares, ~3.9% of the portfolio’s assets, if we see a pronounced negative reaction to its earnings and guidance, there could be room to add a few more shares to our position because we are still in the early innings of AI adoption and its impact on digital infrastructure. This keeps us bullish not only on NVDA shares but also on Marvell MRVL ones as well.

Announcements yesterday from Dell DELL and Microsoft about new AI-powered PCs and tablets support the coming AI-on-device upgrade cycle that we’ve been talking about. Dell shared it will be delivering them in volume this year and be “pretty standard” next year. As we suspected it would, Microsoft announced a Surface Laptop and a Surface Pro tablet with Qualcomm QCOM chips that can run some AI tasks without an internet connection.

Other computer makers like Lenovo LNVGY, Dell, HP HPQ, Asus AKCPF, Acer ACEYY, and Samsung SSNLF are also launching AI-ready PCs powered by Snapdragon chips from Qualcomm. This positions Qualcomm and its shares very well, while also helping to diversify the company’s business away from the smartphone market.

That is prompting us to boost our QCOM price target to $230 from $210 today, however, members should not be surprised if we use additional strength in QCOM shares to lock in some gains following their almost 90% move since late October.

We are inclined to boost our MSFT price target as well, but we’ll hold off at least until we make it through today’s Build conference sessions.

Fed speakers make the rounds again, we expect more cold water

Getting back to today, there are no major US economic data releases, but we will have at least six Fed speakers making the rounds. Ahead of Thursday’s Flash May PMI data, that group is likely to repeat Fed speaker messaging of the last few days - more data is needed to become comfortable that inflation is getting back on a downward slope on a sustainable basis.

With copper and other commodities hitting their highest levels, in some cases in multiple years, there is reason to think the path to Fed rate cuts may not be as soon as September. Setting the stage for what we’re likely to hear today, Fed Vice Chair Michael Barr said he wants to see “several months” of good inflation data before lowering rates.

Our near-term plan for the portfolio

Should the market continue to move up, both the S&P 500 and the Nasdaq Composite could enter overbought conditions with relative strength indicators crossing above 70. We’re starting to see folks question the current market multiple of 21.8x forward EPS, which almost matches the S&P 500’s peak P/E multiple of the last two years.

The S&P 500 and Nasdaq Composite moving into overbought territory is likely to fuel even more such questions, putting the focus back on the economy and prospects for even stronger EPS generation this year than is currently expected. With the Fear and Greed Index flashing “Greed” and Citi’s Panic-Euphoria model knocking on “Euphoria”, if Nvidia’s earnings and guidance or the Flash May PMI data fail to wow, we could see the market give back some of its high-single-digit gains notched over the last month.

For us that could bring about another opportunity to put some cash to work. With that in mind, we’re closely watching Axon AXON shares as they test the 100-day moving average. We also have our eyes on Coty COTY and quarterly earnings tomorrow from elf Beauty ELF. Shares of Waste Management WM are also on our shopping list.

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At the time of publication, TheStreet Pro Portfolio was long MSFT, NVDA, AAPL, MRVL, QCOM, COTY, WM, AXON.