VIDEO: We Don't See Qualcomm Acquiring Intel

In today's Daily Rundown video, Chris Versace discusses the week ahead, previewing the data and earnings expected to hit. He also reviewed the latest reports of semiconductor manufacturer and Portfolio holding Qualcomm QCOM approaching rival Intel INTC about a potential takeover.

"A deal for Intel, which has a market value of roughly $90 billion, would come as the chip maker has been suffering through one of the most significant crises in its five-decade history," according to The Wall Street Journal.

But Versace dismissed the likelihood of such a deal crossing the finish line.

"There might be some regulatory issues with the transaction," he noted. "There might be some other flags that are thrown on Qualcomm buying Intel."

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here Monday, September 3, kicking off the latest week for the markets. We've got a bunch of economic data coming at us. We've got some earnings we want to pay attention to. And we've got almost a dozen Fed speakers, so it might not exactly be the slowest week. There's going to be a lot to pay attention to.

Let's lay it out by talking about the week ahead. So we are going to get some economic data like I mentioned, and we will get the flash September PMI reports for manufacturing and services from S&P Global. We'll also get some other housing data, new home sales figures for August, that sort of thing. But we'll also get the personal income and spending report for August, which of course, means it's going to be dragging with it, the PCE Price Index. So a lot of folks are going to be focused on that PCE price index for August, really on the core, looking for further confirmation that inflation is easing, moving toward the Fed's 2% target.

We will be looking for that, too. But I have to say, I'm far more interested in what we find in the flash September PMI report for manufacturing and services. If you saw the Alert that we published this morning, that kind of breaks the economy down into seven charts. You'll see the recent trends there for both the manufacturing and services side. No surprise that the services side of the economy has been carrying the overall economy.

Manufacturing has been contracting over the last few months, but we will be interested to see if those trends hold. Remember, we talked about the pickup in railcar loadings, and that would suggest that we might see an incrementally stronger manufacturing economy during the month of September. Two other things that we'll be digging into as it relates to the flash September PMI report, another set of inflation data this time for September.

So remember Friday's report will be for August. What we'll get with the flash PMI is for September. So we will want to make sure that we understand what it says about input costs, output costs, and that continuing trend. We'll also want to pay attention to what it has to say about employment and job creation. We know the Fed is focused in on that. So are we.

If there is a sense that job creation has slowed in September, that would likely support the notion that the Fed would do another 50 basis points later this year and keep it on path, at least for now, for the 100 that they telegraphed in 2025. But we'll have to see. We also want to pay very close attention in the flash PMI report for September for any comments about concerns of this looming longshoreman strike that could go into effect in very early October. That would affect East and Gulf Coast ports, really kind of crippling the East Coast, if you will, potentially renewing supply chain issues, potentially a thorn in inflation, again, assuming that that strike unfolds.

So we'll have to pay very close attention to that. But again, we want to see are we seeing any pull forward in inventories ahead of that? That's one of the things we'll be looking forward for in the flash September PMI report. The other thing we've got, as I mentioned, is about a dozen Fed heads making the rounds, including Fed Chair Powell on Thursday. The only major report that we're going to be getting ahead of a lot of these folks speaking and Powell speaking is going to be that September flash PMI report. So it's another reason to pay attention to that.

Candidly, do I expect a lot of new rhetoric out of the Fed heads over the next couple of days? I do not. We just had the big meeting last week and the updated set of economic projections. So I expect they'll largely stick to the script. Some might come out and say, oh, I've voted for two more rate cuts this year, or I did this, or I did that. And ultimately, I think the message is going to be that the Fed is going to continue monitoring incoming data and it will continue to make decisions meeting by meeting, which of course, means we will continue to focus on the data as well.

In terms of earnings this week, we do have Costco reporting. And all-in-all, it should be a very good report. Sizing up the company's monthly revenue reports against the monthly retail sales reports that we get from the government, obviously, Costco has been taking consumer wallet share. We'll want to hear an update on their roadmap for expanding their warehouse footprint. And I do think that we're going to see some price target increases coming out of this, largely because and we talked about this, very few on Wall Street have adjusted their earnings expectations for Costco to reflect the September 1 membership fee price increase.

We continue to like Costco, seeing an extremely well-positioned as we move into the holiday shopping season both for in-store but also on its e-commerce business. And I think it's going to be one that I wouldn't be surprised if we have to raise our price target for later this week. We also have earnings from KB Home and coming off of Lennar's earnings last week, which were very positive for homebuilding delivery expectations. Remember, we parsed their guidance. Second half of the year is looking to be up about 21% compared to the first half of 2024. That's very positive.

And we want confirmation of that from KB Home. Are they seeing those same trends? If we do see that, I think the folks on Wall Street and other investors are going to get, I would say, incrementally excited about the homebuilding market, especially as the Fed is poised, one, to move further down the rate curve, but also, two, as recent mortgage rate declines are starting to help stimulate the housing market.

Remember, we like Builders FirstSource. We're probably going to have to raise our price target here as well. Something we'll be reviewing after we get the earnings from KB Home. But remember, one of the things we like about Builders FirstSource is they are arms merchant for the housing market. What I mean by that is they serve a number of the very large home builders-- call it Lennar, call it Toll Brothers and the like.

So it's kind of a rising tide in housing. It should be very good for Builders FirstSource. We're not reliant, in other words, on any one particular home builder that might be winning or losing market share. All-in-all, it comes together through Builders FirstSource.

We also have Jefferies reporting this week. We will be focused on that for its comments about investment banking. That will be something we watch for both Morgan Stanley and Bank of America. We also have Micron reporting. And for us, it's really going to be getting their latest update on what it sees for the PC rebound, the smartphone market and data center. Of course, that will all be something that we're listening for as it relates to our shares of Qualcomm, Apple, but also NVIDIA and Marvell.

Now, let's shift gears a little bit and talk about the notion that Qualcomm is potentially going to make a friendly bid for Intel. That was some news that made the rounds late last week. There was some chatter over the weekend. Our take on it is that I just have to say I don't really see it. One, Intel is a vertically integrated manufacturing company of chips. Qualcomm is a fabless semiconductor company, meaning that they have no manufacturing facilities.

One of their key partners is Taiwan Semiconductor. So it's hard to see that Qualcomm would kind of swoop in and buy all of Intel. Maybe they would buy the design side of their business. I just doubt that Qualcomm would want to go from a asset-light business model to a asset-heavy business model. Of course, they could buy the whole company and potentially spin out their foundries. Maybe a Global Foundries or a Taiwan Semiconductor might be interested in that. We'll have to see.

But I also think, though, too, that there might be some regulatory issues with the transaction. I also think, though, too, that given the reshoring effort that we saw started under the Biden administration that there might be some other flags that are thrown on Qualcomm buying Intel if it turns out that they want to sell the foundry businesses to others who potentially might be outside the US, like a Taiwan Semiconductor.

There's also the issue of national security. In our signals over the weekend, we did share that Intel has won about $3.5 billion in federal grants to make semiconductors for the Pentagon. It kind of raises some questions about whether or not there might be more at play here than simply one chip company buying another. So when you put it all together, our thinking is that while there would be some synergies for Qualcomm making the move, I just don't really see it.

Those synergies, of course, would accelerate its move into the PC market, help diversifying away from smartphone. It would also potentially help Qualcomm crack into the data center market. But there it'll be going head-to-head with NVIDIA and Marvell. So unless it's a friendly deal, one that allows Qualcomm to cut up the parts and get the jewel that it wants, or I can't even say a jewel given where Intel is, but give it the business that it wants, I really see the odds of this being very low.

But we'll see how it all plays out. I will say that the Qualcomm core business and RV remains very favorable. We will again be paying attention to what Micron has to say. And I wouldn't be surprised if the recent sell-off on this potential Intel buy news is an opportunity for folks to pick up some Qualcomm shares. But we'll know more about that after Micron reports.

So with that said, I would say be sure to pay attention to your emails, your Alerts. We want to make sure you're getting the latest thoughts that we have as we digest incoming data and other reports. But also too, be sure to check your email Alerts, because if we make any moves with the portfolio, we want to make sure that you are right there with us. Thanks for watching.

At the time of publication, TheStreet Pro Portfolio was long QCOM.