Apple Inc. (AAPL) History Points to 10% Upside, Advanced Micro Devices, Inc.’s (AMD) Biggest Growth Opportunity Lies in Datacenter Market


How does investor sentiment rise and fall for Apple Inc. (NASDAQ:AAPL) and Advanced Micro Devices, Inc. (NASDAQ:AMD)? BMO looks to the past as a great fortuneteller of future upside to come, believing that when considering the iPhone 6 as an example, the iPhone 8 is going to be a key earnings driver for Apple. Conversely, investors felt AMD underwhelmed at its analyst meeting yesterday with the chip giant’s financial goals for 2020. MKM might be on the sidelines for now, but the analyst sees growth waiting in the wings throughout the next five years- especially in the datacenter market. Let’s dive in:

Expectations Conservative for Apple iPhone 8- Expect a Beat

When looking at history, BMO analyst Tim Long sees reason to get even more bullish on Apple, reiterating an Outperform rating on shares of AAPL while lifting the price target from $160 to $170, which represents a 12% increase from where the stock is currently trading.

When considering in the past there has been a “precedent for higher multiple,” Long highlights, “AAPL shares are trading at approximately a 10% discount to the market, similar to the range at this point ahead of iPhone 6 in mid-2014. In that case, we saw the multiple completely close the gap by the time of the launch, and we believe we could see a similar movement this year.”

In fact, the analyst adds, “Given the strong installed base setup we have been writing about, we believe seeing incremental units at just one-quarter the levels of iPhone 6 may be conservative.” Should the forthcoming launch of the iPhone 8 even be “half as good as the iPhone 6” as far as units go, the analyst says investors could expect an extra $0.50 of EPS by fiscal 2018 compared to his model. Hindsight is always 20/20, and the analyst notes that in retrospect when assessing the iPhone 6 cycle, he discovered consensus expectations to be 25% beneath the “actual results for the following fiscal year at this point in the cycle.”

Overall, Long expects further upside in the works for the tech giant, concluding, “The recent run in AAPL shares has closed some of the valuation gap with the market, but we believe there is a historical precedent for 10% of additional upside to the P/E multiple. […] Additional upside would have to come from units, where we believe our model may still be conservative.”

For 2018, the analyst projects AAPL EPS to hit $10.66, more bullish than consensus expectations calling for $10.40.

As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Tim Long is ranked #201 out of 4,566 analysts. Long has a 66% success rate and garners 14.2% in his yearly returns. When recommending AAPL, Long yields 34.4% in average profits on the stock.

TipRanks analytics indicate AAPL as a Strong Buy. Out of 31 analysts polled by TipRanks in the last 3 months, 26 are bullish on Apple stock while 5 remain sidelined. With a return potential of nearly 8%, the stock’s consensus target price stands at $162.41.

AMD: Investors Not Happy, But MKM Optimistic

AMD shares are falling 12% despite the chip giant’s stock resurgence prior to its analyst meeting yesterday. It looks like investors were less than impressed without the promise of a licensing deal with Intel on the table, and shares are now taking a beating today in the aftermath. Moreover, the AMD team set an EPS goal of $0.75 by 2020, which to some is just not high enough.

For 2020, the AMD team also set a gross margin outlook between 40% and 44%, marking a rise compared to its previous longer-term outlook of 36% to 40% and calls for a top line CAGR shooting past the single digits.

Though MKM analyst Ruben Roy saw the meeting as more “upbeat,” expressing a perspective rooted in cautious optimism on back of the giant’s preview of upcoming products, he remains sidelined on valuation. In reaction, the analyst reiterates a Neutral rating on AMD with a $13 price target, which represents a just under 16% increase from where the stock is currently trading.

Diving into the analyst meeting’s highlights, the analyst points to AMD’s “core strategy” and underscores “that its three primary technologies, compute, graphics and platform solutions, will target a broader TAM over the next several years as the company is better positioned to participate in higher-end end market applications,” continuing, “With shares recovering in recent days after the significant declines following a disappointing earnings report two weeks ago, we expect investor focus to turn back to execution. Next catalysts for AMD will be the Computex trade show in early June and continued new product launches.”

From Roy’s eyes, AMD’s best and biggest prospects for growth lie in the datacenter market, as he notes the company has hopes that this will score big throughout the upcoming five years, introducing the EPYC brand as “as the first datacenter products based on the Zen Naples architecture.”

Looking forward, “While AMD’s competitors clearly have established leadership positions throughout the datacenter ecosystem, we believe that a second source will be welcomed. AMD’s differentiated approach to its server products, along with initial performance specifications, suggest that the company will finally be back in the discussion with top-tier customers,” contends Roy, positive on AMD’s prospects even if neutral on share value.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst Ruben Roy is ranked #496 out of 4,566 analysts. Roy has a 65% success rate and realizes 11.1% in his yearly returns. When recommending AMD, Roy earns 0.0% in average profits on the stock.

TipRanks analytics indicate AMD as a Hold. Based on 15 analysts polled by TipRanks in the last 3 months, 5 rate a Buy on AMD stock, 8 maintain a Hold, while 2 issue a Sell. The 12-month average price target stands at $12.71, marking a nearly 13% upside from where the stock is currently trading.