Advanced Micro Devices, Inc. (NASDAQ:AMD) has its Analyst Day this afternoon in Silicon Valley. Ahead of this big date we took the opportunity to delve in and see what analysts are predicting for this volatile stock. The outlook does not look too promising. At the same time, equally importantly, which questions will AMD need to answer to convince stock skeptics that its growth is for the long haul?
AMD’s Naples vs Intel’s Purley
A substantial part of the discussion will no doubt focus on AMD’s Naples system-on-chip- scheduled for launch this quarter with volume ramping in the second half of the year. A preview of the chip back in March revealed that it will deliver the Zen x86 processing engine configurations of up to 32 cores. However, Macquarie analyst Srini Pajjuri is not very excited about the upcoming release as she says the Naples “looks good on paper” but has “no groundbreaking features”.
Pajjuri believes that Intel’s per-core performance, especially when factoring in its Purley server-chip upgrade, will beat AMD’s on most mainstream applications and that a more powerful single core (Intel) is more relevant than a strong multi core performance.
Ultimately the analyst concludes “Software compatibility is less of an issue for AMD, but it’s long absence from the server market means that customers will need additional investments to optimize workloads. While cloud/hyper scale customers might use Naples as a bargaining chip against Intel, we aren’t sure if many will find its performance/features compelling enough to actually adopt it.” He does not see much application for Naples in search applications or public clouds but accepts that it could be suitable for storage (as a potential alternative to the AWS S3 for example).
No Fireworks Yet – Nvidia Fights Back
Morgan Stanley’s top analyst Joseph Moore is also not expecting “any big surprises” from the meeting. Like Pajjuri, he believes that Intel remains a big threat to AMD. In respect of AMD’s recently released Zen based CPU processor Ryzen, Moore says “Ryzen looks competitive, but Intel should move the bar forward in performance in 2H by close to 20%, and 10 nm ramps next year.” For Naples he is predicting “a small revenue opportunity this year” but thinks any planned customer partnerships will not be revealed just yet.
In regards to the high-end GPU chip Vega chip Moore currently has “fairly low expectations” given the competition from Nvidia’s 1080 which costs $500 and has, he suspects, similar bandwidth memory capacity. And further competition could come from Nvidia’s Volta GPU: “As far as data center graphics, Volta has potentially significantly raised the bar for those performance sensitive applications” says Moore, who expects for further details to be released about the Vega at the meeting.
Moore- who has a hold rating on AMD- has a very strong track record with his ratings, according to analyst ranking service TipRanks. He contends that AMD should really only make about 30 cents per year in “earnings power” even though he expects AMD will estimate a figure closer to 50 cents. Per recommendation, Moore has a success rate of 59% and an average return of 13%. He is in the top 500 of the 4,500 analysts tracked by TipRanks.
Questions to Answer
Bernstein’s Stacy Rasgon– who is notably bearish on AMD- will be taking the opportunity to learn more about AMD’s long term plans, including its plans and guidance for the second half of the year. Rasgon is also looking for information on AMD’s capital structure and balance sheet; how the company intends to profit from IP; updates on the Chinese THATIC x86 server licensing initiative; AMD’s EESC (Enterprise, Embedded, and Semi-Custom) potential; how any future profits will be reinvested and whether the current accelerated pace of product updates can be maintained.
Finally Rasgon will be also be listening out for further insights into how big the CPU and graphics datacenter opportunity is- and ultimately how AMD intends to take an increase share of this market.
With these key questions outstanding, Rasgon reiterated his Hold rating and his below consensus 12-month price target of just $8 (about a -30% downside from the current price). According to TipRanks, Rasgon has a 57% success rate and average return per recommendation of 4.3% placing him at #1,477 out of a total of 4,572 tracked analysts.
Consensus Shows Upside Potential
In terms of the overall market consensus, TipRanks reveals that AMD has a cautious Moderate Buy analyst consensus rating. Over the last three months, analysts have published 6 buy, 7 hold and 2 sell ratings on the stock. However the average analyst price target of $13.00 translates into a respectable 14% upside from the current $11.42 share price.