AMD: Short-Term Performance Is Raring for an Outclass
Susquehanna analyst Christopher Rolland is so confident on Advanced Micro Devices, Inc. (NASDAQ:AMD) ahead of the chip giant’s print due tomorrow that he cheekily notes, “Even my mother knows AMD is going to beat” the Street. However, though the third quarter glimmers with the promise of upside, fourth quarter is not as clear-cut when it comes to the “magnitude” of AMD’s beat-worthy momentum. With rising CPU ASPs shooting up past 70% on back of the Ryzen launch, the company could be outclassing its own gross margin guide for the quarter by a whopping 34%.
Though short-term looks strong for the semiconductor player, which has prompted the analyst to lift his expectations, the long-term is hazy, considering this is a company that has relatively “underperformed the SOX since its 2Q17 earnings report.” Maybe this pull the bar down a notch when it comes to execution expectations, says Rolland.
In a cautiously optimistic preview of tomorrow’s print, the analyst reiterates a Neutral rating on AMD stock with a $15 price target, which represents a just under 7% increase from where the stock is currently trading. (To watch Rolland’s track record, click here)
Rolland explains, “We expect a solid beat and raise, although magnitude of 4Q17 beat is unclear. Better Ryzen units and ASP as well as mining GPUs to provide 3Q17 upside, while mining GPU (and perhaps Ryzen mobile) the big swing factor in 4Q17 guide.”
Additionally, the analyst continues, “While the launch of Ryzen Mobile should help 4Q17, the magnitude of the beat is heavily dependent on the contribution of mining related GPUs and management’s handling of these estimates (conservative?),” highlighting that as Ryzen is “gaining desktop share,” this “should provide ASP and GM uplift.”
Fourth quarter could stand to benefit from Ryzen mobile, as Rolland contends, “Ryzen mobile with integrated Vega graphics should help 4Q17 Compute units and ASPs. Checks in Asia suggest that even Lenovo, traditionally an Intel shop, will use Ryzen in some commercial laptops.”
Wall Street is positive on this tech stock, considering TipRanks analytics showcase AMD as a Buy. Out of 18 analysts polled by TipRanks in the last 3 months, 8 are bullish on AMD stock, 7 remain sidelined, and 3 are bearish on the stock. With a return potential of 2%, the stock’s consensus target price stands at $14.44.
Apple Backdrop Compelling with Mix and ASP Catalysts to Ignite Shares
Apple Inc. (NASDAQ:AAPL) is readying to roll out fiscal fourth quarter results for the year on the 2nd of November and Gene Munster – doling out a tech perspective from his research-driven, venture capital firm Loup Ventures – believes the call is going to be all about iPhone X preorders.
How will these preorders translate to the overall iPhone mix and ASP, the analyst questions, noting that this one-two combo will act as “the biggest driver of AAPL shares in the next year, which we expect to be favorable to the story.”
Taking under account higher ASPs, the analyst is boosting his forecasts. For fiscal 2018, the analyst is lifting his iPhone ASP up 15% to $740, more bullish than the Street’s estimate calling for an 8% year-over-year rise to $696, revenue expectations to $273 billion ahead of the Street’s $265 billion, and EPS estimate to $11.25 above the Street’s $11.05.
For the first fiscal quarter of 2018, the analyst is now expecting 77.5 million iPhones, under the Street’s 82 million, pushing back 7 million units to the second fiscal quarter of 2018, where he now calls for 64.5 million iPhones above the Street’s 61 million. Munster points to iPhone X facing production constraints nipping at its heels for the estimate adjust. For fiscal 2018, Munster projects the tech titan to bring 238 million iPhones to its table, indicating Apple would experience a 9% year-over-year surge, hovering below the Street’s 242 million.
Munster highlights that iPhone revenue growth is going to evolve attractively for the tech titan, even if the release of the latest model may not be as impressive as some had hoped: “The release of the iPhone 8 was underwhelming compared to past iPhone launches, but this is not bad news for Apple. This year’s iPhone cycle will have its units and revenues split between the iPhone 8 and the iPhone X. We anticipate ~25% of iPhone SKUs purchased in FY18 will be an iPhone X (with about ~30% iPhone 8). Historically about half of the iPhones purchased in a given year are the most recently released model. This bodes well for iPhone revenue growth as this cycle’s ASP is materially higher than previous cycles.” Even if margins are not at their most stellar right now, phones for 2017 will yield higher gross profit dollars, the analyst argues.
Concluding that based on Munster’s most recent survey, a quarter of the domestic iPhone base is poised for an “upgrade wave,” the analyst surmises: “Owners of older phones will be more inclined to upgrade in a given cycle. In addition, this year’s models offer a favorable ASP mix, both of which are positive data points for Apple. Owners of newer models will still be inclined to upgrade due to the draw of more advanced technology and new features, so it is not hard to believe that the Street’s estimates are conservative. For our part, we are modeling 238 million units to be sold, and would not be surprised to find this estimate conservative once the sales data starts coming in.”
Wall Street has dubbed the smartphone giant a favorite, as TipRanks analytics exhibit AAPL as a Strong Buy. Based on 29 analysts polled by TipRanks in the last 3 months, 22 rate a Buy on Apple stock while 7 maintain a Hold. The 12-month average price target stands at $176.61, marking a 13% upside from where the stock is currently trading.