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Xilinx Scales New 52-Week High: What's Driving the Stock?

Shares of Xilinx, Inc. XLNX rallied to a new 52-week high of $91.17, eventually closing a tad lower at $90.54 on Nov 16.

Notably, the stock has appreciated 34.3% year to date compared with S&P 500’s rally of 2.6%.

The upside can be attribute to the company’s strength in advanced products. This is evident from its recently reported second-quarter fiscal 2019 results, wherein revenues from Advanced product surged 43% year over year, constituting 64% of total revenues for the quarter.  

We note that the company has beaten the Zacks Consensus Estimate in three of the trailing four quarters, the average positive surprise being 8.74%.

Xilinx has a market cap of $22.91 billion and a long-term expected earnings growth rate of 9.50%.

What’s Backing the Rally?

Xilinx is benefiting from growth across majority of the end markets. Solid performance of its Data Center and TME, Industrial, Aerospace, and Defense and Communications businesses is buoying investor’s confidence in the company’s near-term prospects. Notably, growth in wireless and wired businesses due to LTE upgrades, early deployment of 5G in Korea and preparation for 5G deployment in both China and North America bode well for the company.

Moreover, Xilinx’s ongoing transition from a field programmable gate arrays (FPGA) provider to an all-programmable devices producer has been helping it gain market share and counter stiff competition from the likes of Intel INTC.

The company already has a stronghold in the FPGA market, with a market share of 58% compared with Intel, which held a share of 42% in April 2018. According to Xilinx, it enjoys an 18-month lead over Intel in the FPGA market, which, per MarketsandMarkets, is projected to witness a CAGR of 8.5% in the 2017-2023 period.

Moreover, we are optimistic about the demand of Xilinx’s Ultrascale+ FPGAs by data-center operators for providing FPGA-as-a-Service (FaaS). Amazon AMZN was the first to use Xilinx chips and started offering FaaS in May 2017. The company’s leadership position in China market with regard to FaaS expanded with Alibaba BABA moving from beta to general access.

Xilinx has a string of successful products. We note that the company’s first and second generation Zynq products hit a new sales record in the last reported quarter, growing 76% year over year, driven by robust demand in automotive, industrial, communications, and data center markets. The Zynq SoC Platform, which includes Zynq at 28nm and both MPSoC and RFSoC at 16nm, is also a significant contributor to revenues.

Notably, Xilinx unveiled Alveo, a suit of accelerator cards, aimed at increasing the performance and productivity of industry-standard servers across cloud and on-premise data centers.  Recently, it expanded its Alveo portfolio with Alveo U280 high bandwidth memory accelerator card. The company expects Alveo revenues to start increasing in the second half of fiscal 2019, and to contribute meaningfully in fiscal 2020. This is an encouraging projection for investors.

Xilinx currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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