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Advanced Micro Devices, Inc. (AMD): Christopher Rolland Stays Bearish Longer-Term, But Spots Some Short-Term Advantage

As Bitmain rears its official head in the ethereum mining arena, a big percentage of sales are threatened for AMD's GPUs.


Is Advanced Micro Devices, Inc. (NASDAQ:AMD) about to get squeezed in the ethereum digital currency mining market?

Susquehanna analyst Christopher Rolland already saw the writing on the wall when he turned bearish on AMD last week, anticipating Bitcoin mining giant Bitmain was ready to rumble amid a proliferating Ethereum mining playing field with a new application-specific integrated circuit (ASIC). Turns out, Rolland’s heads up is right on target, as Bitmain has officially unleashed its new Antminer E3 based on a new Ethereum ASIC- and AMD shares are subsequently taking a 4% hit this morning.

Finding the announcement “consistent” with Rolland’s move to start sounding the alarm on AMD last week, the analyst reiterates a Negative rating on the stock with a $7.50 price target, which implies an 18% downside from current levels. (To watch Rolland’s track record, click here)

Don’t forget, warns Rolland, there may be three additional chip designers on the loose, nipping at AMD’s heels as they develop their own Ethereum ASICs. Meanwhile, the Chinese-based Bitmain’s new Antminer E3 looks good- which bodes poorly for AMD: “Initial specs for the E3 are powerful, resulting in a 3x to 5x price performance mining improvement over today’s premium graphics cards when priced at MSRP or typical retail prices, respectively.” AMD investors may be spooked to see that pre-orders for Bitmain’s Antminer E3 sold out in just minutes- thanks to an attractive price tag of $800 per unit.

Yet, the analyst still believes his negative call could prove premature- especially should this Friday’s Ethereum committee meeting judge the new ASIC as “inefficient;” an outcome that stands uncertain until then.

All the same, “Ethereum still helps AMD to blow out 1H18,” acknowledges the analyst, who boosts his expectations on mining GPU sales short-term, but still lowers second half of the year expectations and “beyond.”

For the first quarter, Rolland now lifts his forecasts $100 million above the midpoint of AMD’s guide to account for $425 million in Ethereum-related GPU sales coupled with second quarter projections on the necessary channel replenishment that has not transpired yet. “Amazingly, this ‘Ethereum effect’ compels us” to get bullish on first quarter revenue, highlights Rolland, who now has expectations $100 million over the Street. After all, more than a quarter of AMD’s first quarter sales for the year stem from mining, points out Rolland.

The second quarter outlook for 2018 likewise could meaningfully trounce the Street’s estimates. Worthy of note, the analyst angles for a short-term substantial advantage from Ethereum-related GPU sales in the first quarter, “given continued stock-outs, bare channel inventory and likely extreme overbookings from graphics card OEMs.” Between AMD and fellow chip giant NVDA, Rolland calculates a combined $850 million of Ethereum-related GPU sales in the first quarter.

However, “The potential for this new device, along with falling ETH coin prices/mining profitability and a transition from proof-of-work to proof-of-stake (and/or perhaps even a move to ‘sharding’), puts a significant percentage of sales at risk for both AMD and NVDA in the intermediate term,” Rolland surmises, staying bearish on AMD’s opportunity amid the rise of Bitmain’s Ethereum ASIC.

TipRanks points to caution tinged with positivity among analysts surveying AMD on the Street. Out of 15 analysts polled in the last 3 months, 7 are bullish on the chip giant, 4 remain sidelined, while 4 are bearish on the stock. With a solid return potential of 57%, the stock’s consensus target price stands at $15.00.