Analysts Advocate to Buy Advanced Micro Devices, Inc. (AMD) and Tesla Inc (TSLA) on Q3 Weakness Opportunity

Matt Ramsay: Brush off AMD margin confusion; Ben Kallo: Any TSLA pullbacks indicate time to add positions.


Don’t Worry- AMD’s Growth and Margin-Expansion Are Still Going Strong

Advanced Micro Devices, Inc. (NASDAQ:AMD) shares stumbled 13% yesterday in the market despite the strength of its third quarter results released Tuesday evening. The culprit? Gross margin guidance fell flat, leaving investors dissatisfied and running for the hills in the aftermath.

However, top analyst Matt Ramsay advises, “Ignore the frustrating chop, ride the long-term wave,” believing this “margin confusion” is a minor setback compared to a fourth quarter guide that largely exhibits “solid” margin development as a whole, with a slew of new products at play. Additionally, the fourth quarter guide benefits from a ramping Ryzen desktop combined with new laptop APUs, the launch of EPYC CPUs, buzzing short-term blockchain demand for GPUs, as well as the progressing ramp of Vega GPUs. True, there was a seasonal quarterly dip in gaming console sales, but from Ramsay’s eyes, there is far more reward here than reason to be apprehensive.

In reaction, the analyst reiterates a Buy rating on AMD stock with a $20 price target, which represents a 61% increase from where the stock is currently trading.

On back of the print, the analyst has bumped up his 2017 revenue expectations from $5.05 billion to $5.24 billion while also adjusting his non-GAAP EPS forecast on an upturn from $0.08 to $0.12. Looking into next year, the analyst is also increasingly bullish, boosting his revenue projection from $5.91 billion to $6.05 billion and EPS from $0.29 to $0.31, anticipating robust product momentum. Downt he line, the analyst lifts his base 2020 non-GAAP EPS forecast from $0.84 to $0.87 and maintains his bull case expectations at $1.30, pointing to a better revenue and margin guide coupled with sustained strides in AMD’s roadmap.

Keep in mind there can be compelling buying advantage when investors get spooked, as Ramsay contends: “While investors seem focused on the subtleties in gross margin and size of the crypto-currency contribution, we believe the stock pullback creates a buying opportunity for a growth and margin-expansion narrative still very much intact. CG and EESC Q3/17 results were strong and exhibited higher levels of profitability driven by new product rollout in CG and a solid start to new EPYC server sales in EESC, while management struck an upbeat tone on the progress of the company’s roadmap on 7nm and 12nm development. We continue to believe a host of positive catalysts remain into 2018 and beyond as Ryzen and EYPC CPUs ramp and Vega GPUs launch into PC and datacenter markets. While we recognize 7nm roadmap execution and competitive risks remain, we believe AMD’s new products across the PC, GPU, and server segments should result in gradual market share gains and yield materially higher gross margins versus current levels.”

Matt Ramsay has a very good TipRanks score with a 67% success rate and a high ranking of #61 out of 4,700 analysts. Ramsay realizes 25.1% in his yearly returns. When recommending AMD, Ramsay yields 40.2% in average profits on the stock.

Wall Street is largely positive on this chip giant, considering TipRanks analytics exhibit AMD as a Buy. Out of 22 analysts polled by TipRanks in the last 3 months, 9 are bullish on Advanced Micro Devices stock, 10 remain sidelined, and 3 are bearish on the stock. With a return potential of 19%, the stock’s consensus target price stands at $14.70.

Tesla Weakness Will Translate to Bullish Gains

Tesla Inc (NASDAQ:TSLA) is not due to post its third quarter print until November 1st, but one bull already predicts pullback in the stock, anticipating the Model 3 will be an initial drag on margins. However, from a “confident” standpoint, any investor apprehension signals a valuable opportunity to buy the electric car giant that one voice believes is bound to hit expectations down the line.

As far as Baird analyst Ben Kallo is concerned, CEO Elon Musk’s brainchild is a Wall Street tech player that will award bulls patient to wait out short-term slip-ups for long-term gains.

Though the analyst reigns in his expectations ahead of the third quarter print, he maintains an Outperform rating on TSLA stock with a price target of $411, which implies a 25% increase from current levels. (To watch Kallo’s track record, click here)

“We are buyers on any weakness from TSLA’s Q3 results. We are lowering estimates to reflect lower absorption from the Model 3, which will impact margins, although we believe this is widely known. Investors will be focused on current Model 3 production levels and expectations for future cash flow, and despite initial challenges in the Model 3 production ramp, we are confident TSLA will reach its production targets over the intermediate term. We would use any weakness to build positions in the stock,” asserts Kallo.

The Street is less sure of the electric car giant’s value than Kallo, as TipRanks analytics reveal TSLA as a Hold. Based on 22 analysts polled by TipRanks in the last 3 months, 6 rate a Buy on Tesla stock, 7 maintain a Hold, while 9 issue a Sell on the stock. The 12-month average price target stands at $314.44, marking a nearly 4% downside from where the stock is currently trading.