This Analyst Downgraded Advanced Micro Devices (AMD) Stock as Valuation Appears Rich


Investors should stay away from Advanced Micro Devices (AMD) stock for now as its share price trades well beyond company fundamentals — at least if you ask Baird analyst Tristan Gerra. The analyst has downgraded AMD from Buy to Neutral, while lifting the price target to $28 (from $20), which implies a slight upside potential from current levels.

Gerra explains, “While AMD’s fundamentals continue to improve: 1). PC share gains expectations resulting from Intel’s CPU shortage may be too high; 2). Graphic cards channel inventory deleveraging is likely a multi-quarter dynamic; 3). EPYC ramp outlook is impressive but remains limited and Intel will react with new architectures. We believe expectations and valuation are high, prompting our downgrade. Raising our estimates to reflect strong 7nm execution, limited nearterm share gains in PCs, and the ramp of newly refreshed Athlon CPUs. However, we think most good news are already priced in.”

“Raising our estimates given 1) Strong execution at the 7nm node and positive market share implications medium-term; 2) Share gains in PCs in the face of Intel’s CPU shortage; 3) The ramp of newly refreshed Athlon CPUs. However, valuation appears rich. Stock is currently trading at 25x our new 2020 EPS estimate. Expectations are high while Intel continues to execute and will likely introduce new architectures to protect its share in data center in the medium term.” the analyst added.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Tristan Gerra has a yearly average return of 20% and a 61% success rate. Gerra has a 136.5% average return when recommending AMD, and is ranked #240 out of 4881 analysts.

Net net, Wall Street sizes up AMD as a ‘Moderate Buy’ stock, as the bulls edge out the cautious on the chip giant. In the last 3 months, the stock has received 10 bullish ratings versus 10 analysts hedging their bets, and one bear who thinks the stock price could plunge. The 12-month average price target stands at $28.95, marking a nearly 5% upside from where the stock is currently trading. (See AMD’s price targets and analyst ratings on TipRanks)

 

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