Chip shortage can slip into 2022, American Eagle on track for $1 billion in sales

Taiwan Semiconductor Manufacturing Company warns of chip shortage potentially continuing into 2022 as American Eagle provides upbeat Q1 revenue guidance. Yahoo Finance’s Myles Udland and Brian Sozzi discuss the details.

Video transcript

BRIAN SOZZI: It is not an understatement. There is a lot going on in the markets right now. Myles, I know you and I've been fixated on this day two of Coinbase trading, and of course, bank earnings. But pretty big earnings report and an important one out of Taiwan Semiconductor this morning.

MYLES UDLAND: Yeah, you know, it's interesting. They're talking about the chip shortage could slip into 2022. It's interesting. I kind of, given the conversations that we've had with folks in the last few weeks, I thought that was already table stakes. I thought everyone thought that we were going to have a chip shortage for 18 more months, and my math puts 18 months into 2022.

But it's also interesting to see the stock selling off on that, right? The readthrough-- and Sozzi, we have talked about this with individual investors. We've talked about it with strategists, sector experts, pretty much anybody you can name. Everyone knows there's a chip shortage and everyone knows the bull case for some of these names that we have up on the screen.

And if you look at where these stocks are relative to their 52-week high, Intel's only off 5%, Micron is off only 7%. Nvidia is basically at a new high. The Philly Semiconductor Index is only down about 2%. And so, Sozzi, I'm a little bit surprised just to see the market continue to-- I mean, I guess, the market's always going to trade on new information. But I mean, there have rarely been over the last decade, as you baked in well defined consensus cases, as there's a chip shortage, the prices are going up, there's going to be more investment, everybody in the pool, basically.

BRIAN SOZZI: Yeah, and I think the readthrough here, or at least to me, Myles, or one of them, is you're probably looking at some pretty strong quarters out of the computer makers, like a Dell and HP, because notebook demand, desktop demand is starting to come back a little bit. The next shoe to drop here in that space at least is enterprise demand. As we start to go back to the office, there's a lot of antiquated equipment in offices. When many of us have not been in there for over a year, that stuff is going to have to be upgraded.

So you could see a next level of demand within the chip space. Certainly autos have to get their chips so they can start making some trucks at the likes of Ford and General Motors. But the next area of focus here is on enterprise demand. Those big servers, those big mainframe computers, they use a lot of chips. And they're going to need them.

MYLES UDLAND: You know, Sozz, it's funny you mentioned Dell. The stock is higher today for an unrelated transaction, the spin-off of its stake in VMware and special dividend. A truly, truly great financial engineering story for the business school books over at Dell and VMware and what's happened in the last decade. But let's pivot away from what's happening in the text space to your favorite area of the market. We'll call it your second favorite because, Sozzi, I know you love fast food the most.

Second favorite area of the market is retail. American Eagle out last night with a big, big guidance outlook here. The stock is up 4%, and it's-- I mean, Sozzi, the apparel trade has been just a fascinating one to track over the last six months. The performance in these stocks and the bullishness that we're seeing from executive teams around the future, kind of this reopening boom of people buying new clothes, American Eagle certainly at the center of that.

BRIAN SOZZI: Yeah, this was, I would say, an unsurprising release, Myles, in the sense that if you track Google mobility data over the past month, you've seen a lot of folks back out there at department stores, back out there at physical retailers, as they have reopened. They have taken their stimulus checks. They're out there buying apparel. They're out there buying footwear. You know, we-- myself and Reggie Wade talked to FootLocker's CEO Dick Johnson a couple of weeks ago. He is seeing strength in footwear in large part because of stimulus checks.

And we saw this now playing out in American Eagle Outfitters. It came out last night preannounced. Results said first quarter revenue is on track to reach over $1 billion. And here's the kicker. That would be a mid-teens-- a mid-teens percentage increase compared to pre-COVID-19 first quarter levels. So that's a pretty large increase. Also worth noting here, they're not selling discounted items. Inventories in retail remain very, very low. They are selling full price items. And they note here they're having strong margins. And as a result, Myles, you're seeing a lot of analysts come out here very bullish on the stock this morning.

MYLES UDLAND: Yeah, that's the kind of guidance we like to see, comparing it to 2019. Now we're getting a real comp because, as we've mentioned, those 2020 numbers, they're going to look a little bit goofy all across the board. So, again, American Eagle stock, that's on the move here. Another name we've talked about has been Abercrombie and Fitch. That stock is up 3% in sympathy with this.

And when I look at both of these names, Sozzi, not only are the stocks have more than doubled in most cases from the lows last March. Go back over the last five years. Remember, these were the center of the death of the mall story. They're now at five-year highs, both of those names, Abercrombie and American Eagle, and I think really interesting long-term stories.

BRIAN SOZZI: Yeah, it makes sense to me, Myles, that you're seeing really a massive upgrading in people's closets as they go back out there to work, or they go back out there for a drink. That is happening. We also heard that from Levi's CFO Harmit Singh, too, on their earnings. People are back out there buying jeans and, what he said, balloon jeans. But we'll leave it on that.