Xilinx’s stock has gone too high too fast, this investor says

Semiconductor player Xilinx (Xilinx Stock Quote, Chart NASDAQ:XLNX) has been on fire lately, climbing to new all-time highs and beating analysts’ expectations with its earnings, but is it too late for investors to join the party? Likely, says Kim Bolton, portfolio manager at Black Swan Dexteritas, who thinks holding off for a pullback is probably the right idea.

“We had about a five per cent position in Xilinx,” says Bolton, in conversation with BNN Bloomberg on Wednesday. “Our 12-month price target is at $122 and here it is sitting at $130, and that’s why we’re underweight in Xilinx.”

“We started taking profit at around $120, we have a smaller position right now. I think you’ll probably be able to pick it up cheaper down around $110,” he says.

Xilinx, which makes field-programmable array chips, has been impressing with its quarterly results as of late. In January, the company’s share price jumped on its fiscal third quarter report, which featured record revenues of $800 million, up 34 per cent year-over-year and adjusted EPS of $0.92 per share, beating the consensus expectation of $0.85 per share. (All figures in US dollars.)

On the quarter, CEO Victor Peng said there’s more good news to come.

“Based on the guidance we are providing for the fiscal fourth quarter, we expect to exceed $3 billion in annual revenues for the first time in our history. In addition to the robust revenue growth, we also demonstrated strong profitability by posting over 60 per cent growth in non-GAAP operating income and over 40 per cent growth in non-GAAP diluted earnings per share year over year. We continue to execute to our strategy and drive growth across our portfolio,” Peng said.

Xilinx came into 2018 relatively flat and stayed that way until around September when it started to move upwards. But the big gains came in 2019 where the stock has risen almost 50 per cent year-to-date.

While the company has been producing programmable chips for decades, Bolton says that its products are now finding a lot of demand in the gaming and AI spaces.

“They’ve got a really clear niche,” Bolton says. “They feed into the gaming industry, they feed into the AI and machine learning industry and it has great opportunities in computing and networking and storage.”

“It’s actually very difficult for other [companies] to play in this space,” he adds. “They have a great moat around this.”