Advanced Micro Devices (AMD): What the Hell Has Happened to the Stock?

Thursday turned out to be a nightmare for shareholders of Advanced Micro Devices (AMD), as the stock price tumbled nearly 13% in the wake of disappointing earnings report. Specifically, AMD reported 3Q18 revenues of $1.65 billion, down 6% q/q, and below consensus’ estimates for $1.70 billion. EPS was $0.13 and a touch ahead of consensus’ estimates of $0.12. 4Q sales outlook at $1.45 billion also missed consensus’ estimates of $1.6 billion. Management attributed weakness to GPU inventory excess associated with anemic crypto mining sales.

“But they said crypto was only 10% of sales?,” Susquehanna analyst Christopher Rolland criticizes. “As a reminder, management had estimated 10% of 1Q18 company revenue ($165 million) for crypto-GPU, while we had (very publically) estimated almost $400 million or 23% of total. We now estimate the company has worked through 2/3 of the $400 million headwind, but note potential risks for 1Q19 if modeled incorrectly by the Street. Our rationale is as follows… prior to this report, the Street had been modeling CPU/GPU flattish QOQ vs. typical seasonality of -6% QOQ. If new Street models were to estimate flat 1Q19, combined with the additional GPU headwinds, we believe AMD is at significant risk of yet another guidance miss next quarter.”

The analyst continued, “Top-line aside, the company did a good job of cutting opex and guiding GMs better than expected, thus mitigating some of our EPS estimate cuts. While management is expecting Epyc to inflect in 4Q18, we think investors may be skeptical given their mishandling of the crypto-GPU issue. We think management should disclose to investors an absolute revenue contribution for Epyc in 4Q18 to regain credibility. While crypto-GPU headwinds should be concerning for investors, we do believe they will ultimately pass in a few quarters.”

Net-net, Rolland reiterates a Neutral rating on AMD stock, while cutting the price target to $19 (from $22), which represents a potential downside of 17% from where the stock is currently trading. (To watch Rolland’s track record, click here)

Where does the rest of the Street side on this volatile chip giant? It appears mostly neutral. Out of 24 analysts polled in the last 3 months, 10 are bullish on AMD stock, while 12 remain sidelined and 2 are bearish. With a return potential of nearly 24%, the stock’s consensus target price stands at $28.21. (See AMD’s price targets and analyst ratings on TipRanks)


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