Why Is Lattice Semiconductor (LSCC) Stock Rocketing Higher Today

What Happened:

Shares of semiconductor designer Lattice Semiconductor (NASDAQ:LSCC) jumped 5% in the morning session as markets roared back after an initially muted response to the Fed's rate cut, which sparked a renewed appetite for risk assets. While investors were expecting a reduction in rates from the US central bank, there was a bit of back and forth on whether the cut would be 25bps (a quarter percent) or 50bps (half a percent). 

The Fed ended up slashing its policy rate by 50bps (0.5%) to 4.75%-5.00%. This marks the first rate reduction in roughly four years. As a reminder, the Fed--under Chair Jerome Powell--began raising rates to tackle inflation coming out of the COVID-19 pandemic when a confluence of supply chain disruptions, labor shortages, and stimulus spending caused inflation to run hot. 

Looking forward, the Fed signaled that more cuts are possible in 2024/25. Putting it all together, the announcement and outlook provided a breath of fresh air and a clearer view of the Fed's monetary policy stance, which the market has been waiting for with bated breath. If there's anything the market doesn't like, it's uncertainty. 

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. The result of lower interest rates, all else equal, is higher stock valuations. This is especially true for higher-growth stocks such as those in the technology sector, where the current value depends more on cash flows many years out in the future. After the initial pop the shares cooled down to $54.37, up 4.3% from previous close.

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What is the market telling us:

Lattice Semiconductor’s shares are quite volatile and over the last year have had 23 moves greater than 5%. In context of that, today’s move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The previous big move we wrote about was 2 days ago, when the company gained 5% on the news that Stifel analyst Ruben Roy upgraded the stock's rating from Hold to Buy and assigned a price target of $55. The analyst's upgrade and comments echoed the market's improved sentiment following the appointment of Dr. Ford Tamer as Lattice's CEO. Roy was also constructive on the near-term demand picture, adding, "We expect modest sequential growth to continue into the December quarter. With what looks to be the worst of the current downturn behind us and with recent share price underperformance appearing to reflect reset expectations."

Lattice Semiconductor is down 20.6% since the beginning of the year, and at $54.37 per share it is trading 36.9% below its 52-week high of $86.16 from September 2023. Investors who bought $1,000 worth of Lattice Semiconductor’s shares 5 years ago would now be looking at an investment worth $2,740.

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