Advanced Micro Devices (AMD): Top Analyst Sets the Bar Neutral Ahead of 1Q Results

Credit Suisse's John Pitzer spotlights that while crypto GPU revenue is "waning" in steam, in the short-term up to $200 million in upside could be waiting in the wings.

Top analyst John Pitzer at Credit Suisse is out setting mixed expectations on Advanced Micro Devices, Inc. (NASDAQ:AMD) ahead of tonight’s first quarter earnings show. On the one hand, any short-term upside AMD has scored to its advantage is simply “not sustainable” long-term. On the other hand, even amid dipping momentum in the crypto craze that has dominated GPU sales in the chip world, Pitzer still calls for a whopping $150 to $200 million in upside to his first and second quarter revenue expectations.

Ahead of the print, the analyst offers a sidelined preview, reiterating a Neutral rating on AMD with a $13.50 price target, which implies a close to 37% upside from current levels.

For the first quarter, Pitzer anticipates AMD can outclass Street expectations of $1.55 billion in revenue and $0.08 in EPS, approaching $1.75 billion in revenue and $0.12 in EPS. In terms of the second quarter outlook, the analyst calls for AMD’s management team to guide revenue to align with his forecast of $1.65 billion while shooting past the Street’s $1.59 billion and meeting EPS expectations of $0.10. Pitzer attributes this strength in the first quarter to crypto, PCs, as well as Servers, and believes that while crypto may fall flat in the second quarter in growth, PC and Server gains will continue to rise.

Though optimism is baked into Pitzer’s 12-month target expectations on the chip giant, he nonetheless spots three prospective concerns circling a revenue track for GPUs on back of cryptomania: “(1) Price volatility in Ethereum which makes mining less economical, (2) Bitmain’s Ethereum ASIC scheduled for release in July, and (3) An increased probability of Crypto moving from proof-of-work to proof-of-stake negating the need for mining/GPUs all together. While lack of Crypto sustainability is more of an issue at $13-15 than it is at $9-10, valuation still embeds accelerating revenue growth and margin expansion which we see as less likely: (1) Ryzen margin benefit is more mid to later innings, (2) Epyc channel check momentum peaked ~4 months ago. While we continue to see considerable IP value at AMD, the stock is already trading at 29x CY19 P/E and 42x EV/FCF.”

Meanwhile, though new Ryzen products took a roughly 30% slice of AMD’s fourth quarter revenue, gross margin expansion only climbed around half of what Pitzer had been projecting. To the analyst, this puts the AMD team’s long-term operating margin target of 14% on the spot against the first quarter guide of 8.0%.

On a final note of caution, “Epyc momentum peaked,” concludes Pitzer, underscoring: “While Epyc is just now beginning to ship for Rev, our checks suggest that channel excitement for the new CPU peaked several months back. While we expect socket wins to materialize into 2H Rev of ~$125 mm, units are likely to disappoint relative to management’s C4Q target of ~5% share, up from 0.8% in C4Q17.”

John Pitzer has a very good TipRanks score with a 69% success rate and a high ranking of #64 out of 4,774 analysts. Pitzer yields 2.7% in his annual returns. However, when recommending AMD, Pitzer forfeits 82.9% in average profits on the stock.

TipRanks showcases AMD has positivity on its side when it comes to Wall Street sentiment. Out of 20 analysts polled in the last 3 months, 10 are bullish on the chip giant, 6 remain sidelined, while 4 are bearish on the stock. With a return potential of nearly 48%, the stock’s consensus target price stands at $14.53.

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