Advanced Micro Devices (AMD) Stock: Beware the High Valuation!


A handful of analysts have been recently lured into the Advanced Micro Devices (AMD) hype. A wide swath of them didn’t become bullish until it became very easy to be bullish — when the stock was racing higher. KeyBanc analyst Weston Twigg, however, believes that any moderate downtick to expectations could add substantial risk to the stock based on valuation levels that are far above peers.

As such, Twigg initiated coverage on AMD shares with Sector Weight rating. (To watch Twigg’s track record, click here)

Twigg wrote, “AMD has revitalized its CPU product lineup with its Zen architecture; it launched its second-generation Ryzen products (14 nm) for desktops and notebooks in April, with positive results, and its second-generation EPYC product (7 nm) for servers should launch in 2019. According to Mercury data, AMD has been steadily gaining CPU share this year in desktop, mobile, and server markets, and we expect this trend to continue as Intel struggles to meet demand with its own 14 nm products and continues to delay the launch of its 10 nm products. Server wins in particular are important, as this is a nicely growing market; AMD expects to hit mid-singledigit server unit share exiting this year (up from around 1.5% now) and double-digit share 4-6 quarters later.”

Net net: “We are firm believers in AMD’s revitalized product roadmap strategy, and we’re bullish on the Company. However, we fear that the Street is expecting more rapid share gains than the Company is likely to achieve given 12+ month qualification times for some server chips.”

The rest of Wall Street largely buys into what the chip giant has to offer, as TipRanks analytics reveal AMD as a Buy. Out of 20 analysts polled in the last 3 months, 11 are bullish on AMD stock while 8 remain sidelined, and only 1 is bearish. However, with a potential downside of nearly 12%, the stock’s consensus target price stands at $28.22. (See AMD’s price targets and analyst ratings on TipRanks)

 

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