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The biggest risk to the macro environment is the Fed tightening, says Piper's Harsh Kumar - YouTube
Channel: CNBC Television
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joining me now is harsh kumar senior
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research analyst at piper sandler harsh
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welcome now um the nba playoffs are
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going on and i appreciate a good
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crossover as much as the next guy but a
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week and a half ago you had a neutral
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rating on this and reduce the price
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target from 130 to 98 now you're putting
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it back up
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at 140 what changed
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so thank you john for having me on your
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show um the biggest thing that happened
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is the stocks come in a lot since i
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downgraded we cut the stock at about
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137 138 something like that about a few
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months ago and our teachers was that the
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pc sales were going to slow down that
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would be a headwind designing uh that
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would be a headwind amd and also the
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xilinx acquisition wouldn't be
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materially impactful
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well as it turns out
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amd is navigating those headbands
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extremely well and the xilinx
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acquisition has turned out to be a good
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one for these guys so with the stock
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having come in dramatically lower since
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since previously and trading at just 20
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multiple on a forward basis we thought
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it'd be a good time for investors to
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perhaps take a look at amd now given
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what's happening in the economy overall
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i mean even throughout the whole chip
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sector look at qualcomm and how it's
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behaved after some strong earnings
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marvel similarly
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in a way you were right about amd but
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but it's almost like you're making
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yourself either wrong or you think
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things dramatically reverse from here in
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a way that the macro environment isn't
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saying so what else has to happen for
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this call to be correct or do you think
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regardless of what happens in the macro
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environment amd's going higher i i think
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it's the latter i think the risks to a
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company like amd is relatively little
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the biggest risk of course from the
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macro is the fed is tightening we know
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that and the consumer is slowing down
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and that's directly affecting uh two
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parts of the company's business the
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first one being the pc business
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but fortunately um or strategically for
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amd amd made a big pivot towards
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commercial pcs so the kind of pcs we
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have at work
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other folks have at work these are
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higher priced pcs that are not so
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susceptible to the retail slowdown at
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the low end and they've been shipping
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these computers or chips to these
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computers for about three quarters now
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and it's become a meaningful percentage
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of the business and we think it will
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help navigate this pc market headwind
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that somebody like an intel might see
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for example the second
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business that's susceptible to the
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consumer
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slowdown would be the semi-custom
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business which is the chips for the ps5
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and
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xbox 5 consoles but as you probably know
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if you have kids those consoles are
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still extremely hard to find they're
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still trading at way above msrp
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the chips for those are still in short
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supply so we think this year the console
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business will be a very good grower uh
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so netnet we have a situation where the
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pc business is is is mitigating the
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headwinds through a pivot towards
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commercial pcs the semiconductor
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business is the semi-custom business is
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strong the server business has always
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been strong for the last three or four
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years for the company well and signings
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is a nice cap on the stock
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give me your sense of what then is
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happening in the semiconductor space
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overall we have qualcomm turning in some
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strong results
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in its quarter a lot of that on
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industrial iot i think their iot
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business was up something like 61
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percent you've got
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mar-vell also doing pretty well on
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hyperscalers and their cloud share and
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nvidia's down 40 percent i believe year
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to date
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do you have a call on some of these
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generally well-performing uh companies
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overall whose stocks are down or is this
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just an amd thing
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so we upgraded the entire sector today
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as well we went negative on the sector
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at the beginning of the year on january
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3rd and we just basically said that
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stocks have come in enough um through
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the year
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what we heard talking to investors was
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the recession or slow down whatever you
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want to call it is coming
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we want to see about a 15 to 20 um
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haircut to the earnings number because
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that's what investors thought would
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happen as it turned out with the
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declines in the stocks that we've seen
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through the course of the year
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the stocks are pretty much trading at
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that 15 haircut so it's a very
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interesting analysis if you apply the
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average multiple for the last 10 years
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you get kind of stock prices that are in
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the range that the stocks are at today
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uh including a 15 head cut to earnings
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now we do not anticipate going to the
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lows of the 10-year the lows were
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typically set in the trade board time
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frame and the problem with thinking
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about the trade war is that there were
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about 30 of the revenues of the
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semiconductor industry were at stake
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with china that were potentially going
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to go away we don't see that situation
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happening we see
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a soft landing perhaps even a mid
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landing maybe possibly a hard landing
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for some time but not a 30 reduction
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level
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