Morgan Stanley analysts are weighing in today on tech giant Apple Inc. (NASDAQ:AAPL) and chip maker Advanced Micro Devices, Inc. (NASDAQ:AMD). While one analyst remains positive on Apple despite disappointing earnings release, the other thinks AMD is being overvalued by the market following recent joint venture deal with Chinese firm THATIC.
Apple shares are down nearly 6% to $97.90 after the company posted fiscal second-quarter earnings that fell short of expectations on macro headwinds, slower upgrade cycle, and early iPhone channel inventory reductions.
In reaction, Morgan Stanley’s Kathryn Huberty reduced the price target from $135 to $120, while reiterating an Overweight rating on the stock. The new price target represents a potential upside of 23% from where the stock is currently trading.
Huberty commented, “Given the mixed macroeconomic commentary and the slower upgrade cycle highlighted by both Apple and US carriers, we assume little improvement in the next two quarters.We model 42M iPhones in the September quarter, and 75M iPhones in the December quarter (flat with the last two iPhone cycles). We lower CY16 GM to 38.9%, from 39.5% previously, to account for lower iPhone and higher iPad mix. Net, our CY16 EPS of $8 feels de-risked for currency, end demand and inventory fluctuations as we see them today.”
“Longer-term, we expect iPhone demand to improve. The installed base exiting the March quarter is 80% larger than two years ago, and India should become a bigger growth driver as LTE infrastructure and Apple’s distribution are built out in the country. While shares may take a pause near-term, we like the set-up of a lower bar heading into easier compares and product cycles in C2H16,” the analyst concluded.
According to TipRanks.com, analyst Kathryn Huberty has a yearly average return of 16.2% and a 60% success rate. Huberty has a 20.2% average return when recommending AAPL, and is ranked #92 out of 3906 analysts.
Out of the 54 analysts polled by TipRanks, 40 rate Apple stock a Buy, 11 rate the stock a Hold and 3 recommend a Sell. With a return potential of 36%, the stock’s consensus target price stands at $132.70.
Advanced Micro Devices, Inc.
Morgan Stanley analyst Joseph Moore reiterated an Underweight rating on shares of Advanced Micro Devices, with a price target of $2.65, after the company disclosed a new joint venture with Chinese firm THATIC to “develop SoCs tailored to the Chinese server market that will complement AMD’s own offerings.”
Moore wrote, “AMD is far from out of the woods, and we have questions about whether selling a license is the best way to attack the China server opportunity, which was already central to AMD’s long term turnaround prospects. Opportunities in China and opportunities in servers are going to be key to any hope that the company has of getting back to revenue scale, and to some degree this deal could impact revenue impact. IP sales have always been an avenue to improving the strains on the balance sheet, and while the size of the potential cash infusion here is nice, AMD hasn’t given us the tools to figure out what the long term profit opportunity might be.”
“The primary value driver in the stock, in our view, will be progress on new products Polaris and, particularly, Zen. If AMD can create a server CPU which can become a viable alternative to Intel, than it would likely regret licensing that technology within the most important geography for less than $300 mm, and if it can’t, this IP sale isn’t going to matter,” the analyst concluded.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Joseph Moore has a yearly average return of 6.7% and a 55% success rate. Moore has a -6.7% average return when recommending AMD, and is ranked #601 out of 3906 analysts.
Out of the 22 analysts polled by TipRanks, 5 rate AMD stock a Buy, 11 rate the stock a Hold and 6 recommend a Sell. With a downside potential of 17%, the stock’s consensus target price stands at $3.03.