EUR 850.00 For Business Accounts Only

Morningstar | XLNX Updated Star Rating from 25 Oct 2018

Xilinx reported fiscal second-quarter results ahead of our expectations, while raising full fiscal 2019 revenue growth guidance to a midpoint of 17% (up from 12% last quarter) due to broad-based strength. Despite the near-term concerns that have been plaguing many of Xilinx’s semiconductor counterparts, the firm’s solid results coupled with its optimistic outlook underscore the traction Xilinx is garnering for its FPGAs in promising areas such as the data center. The FPGA leader recently launched its Alevo data center accelerator card for inference applications with attractive performance metrics relative to Nvidia GPUs and Intel CPUs.

We are raising our fair value estimate to $70 per share as we incorporate superior near-term expectations for this narrow-moat name. Shares rose about 11% during after-hours trading, and we’d recommend prospective investors seek a wider margin of safety given the recent turbulence in semiconductor stocks.

Second-quarter revenue rose 19% year over year and 9% sequentially to $746 million, led by the data center and communications segments. The firm continues to build momentum in the data center (up 28% year over year) for FPGA-as-a-Service applications at Amazon Web Services and Alibaba. Meanwhile, communications revenue increased 33% year over year with both wireless and wired businesses benefiting from LTE upgrades as well as early 5G activity in Korea and 5G preparation in China and North America. Gross margins remained at a robust level of 69%.

Management expects third-quarter revenue to be at a midpoint of $770 million, which implies sequential growth of 3%. We remain positive on the prospects of FPGAs in inference applications, though we anticipate Altera (Intel) will also be a formidable player in the space.

CEO Victor Peng stressed Xilinx’s broad portfolio when discussing the firm’s gaudy growth targets and resiliency amid macro headwinds. Nevertheless, we doubt even Xilinx would be spared from escalating trade tensions or other potentially looming pitfalls and remain wary of committing capital at current levels.

For further insight into our views on the AI prospects for chipmakers, please see our Technology Observer “Accelerator: Rise of the Machine (and Deep) Learning Phenomenon.”