Did Advanced Micro Devices, Inc. (AMD) Overshoot Expectations at Analyst Day? Susquehanna Weighs In

Two days ago, Advanced Micro Devices, Inc. (NASDAQ:AMD) hosted an Analyst Day in its headquarters in Sunnyvale, California, where the company’s management offered updates on long-term goals, leading shares to drop nearly 12% for the chip maker. In reaction, Susquehanna analyst Christopher Rolland maintains a Hold rating with a price target of $12, which represents an upside close to 7% compared to where the shares last closed.

The chip maker has never been better positioned in terms of competitive advantage in the semiconductor industry. Among various product updates discussed during the analyst meeting, AMD announced top five PC Original Equipment Manufacturers (OEMs) will kick off Ryzen-based systems as of next quarter. The analyst highlights, “While sales for Ryzen thus far have been only for standalone parts sold to enthusiasts, AMD noted that the top five PC OEMs will be launching Ryzen-based systems in 2Q17.”

Additionally, the semiconductor company seems deeply enthusiastic about Naples, and hopes to reach a double-digit share within the server market. Considering today’s share stands at approximately zero, Rolland points out he “would consider 5% a more realistic victory.” AMD also expressed it intends to reach a double-digit growth rate for its revenue over the next 3 to 4 years, and it would offer by then a bigger basket of premium products, which would enhance profitability.

Overall, the company’s management’s updates are “aggressive.” The target for gross margin is set to reach 36% by 2018 and is expected to rise to a range of 40%-44% by 2020, compared to an estimate of 36%-40% previously. However, the analyst underscores concerns, warning “that the company has been unable to get close to this previous target.” AMD also increased its long-term EPS goal from $0.50 to over $0.75 per annum. Moreover, the semiconductor company projects a total available market of $28B for PCs by the year 2020, along with $15B for Immersive and $21B for Datacenter.

“However, with the stock trading at 35x our CY18 adjusted EPS estimate, we think much of the goodness is already priced in. We remain on the sidelines for now and look to become more constructive if AMD begins to gain significant traction with its new product initiatives,” concludes the analyst.

According to TipRanks, a financial engine that measures and ranks analysts’ and bloggers’ performance, Christopher Rolland is ranked #400 out of #4561 analysts. Rolland has a 64% success rate and generates an annual yield of 9.3%. However, when recommending AMD, the analyst earns a -1.2% average profit on the stock.

TipRanks analytics show AMD as a Hold. Based on 15 analysts offering recommendations for this share, 5 issue a Buy, 8 maintain a Hold and 2 recommend a Sell. The 12-month average price target stands at $12.64, making a nearly 13% upside from where the stock is currently trading.

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