By Benjamin Pimentel, MarketWatch
SAN FRANCISCO (MarketWatch) -- Chip stocks rallied Monday on an
RBC Capital note arguing that the semiconductor industry is
entering a new phase in which chip makers are expected to scale
back capital expenses while generating more cash.
RBC analyst Doug Freedman upgraded several chip-makers to
outperform, led by Micron Technology (MU), Nvidia Corp.(NVDA) Texas
Instruments and Broadcom Corp.
Micron rose 3.5% to close at $26.94, while Nvidia added 3.2% to
close at $18.54 and TI gained 1.4% to close at $45.60.
Freedman said the chip industry was going through a transition
to "a more mature era, and slower unit demand," which is "leading
to excess capacity and broader industry under-utilization, which we
expect to persist through 2016."
"Given this backdrop, lower capital investments are needed as
today's capacity is sufficient to meet demand," he wrote.
"Consequently, we are likely to see greater free cash flow
generation in the industry with companies endorsing
shareholder-friendly capital-allocation strategies."
With capital expenses expected to become a smaller percentage of
sales, he said, chip-makers could use cash "for
shareholder-friendly actions, including buybacks and
dividends."
The Nasdaq Composite Index (RIXF) climbed 1% to close at 4,126.
The Philadelphia Semiconductor Index (SOX) and the Morgan Stanley
High Tech 35 Index (MSH) were each up 1%.
Other gains came from Google Inc.(GOOGL) , Facebook Inc. (FB)
and Apple Inc. (AAPL) On the downside, shares of Twitter (TWTR) and
Microsoft (MSFT) were down a fraction.
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