Two Semiconductor Stocks to Avoid, One to Buy: Advanced Micro Devices, Inc. (AMD), NVIDIA Corporation (NVDA), Micron Technology, Inc. (MU)

MKM analyst Ruben Roy came out today with new reports on a handful of semiconductor stocks. Let’s take a look and see what Roy has to say about Advanced Micro Devices, Inc. (NASDAQ:AMD), NVIDIA Corporation (NASDAQ:NVDA), and Micron Technology, Inc. (NASDAQ:MU).

Before we start, as usual, we like to include the analyst’s trackrecord when reporting on new analyst notes. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Ruben Roy has a yearly average return of 11.1% and a 65% success rate. Roy is ranked #479 out of 4496 analysts.

Advanced Micro Devices, Inc.

Roy assumed coverage on shares of AMD with a Neutral rating and price target of $13.00, which represents a potential downside of 8% from where the stock is currently trading.

The analyst noted, “AMD shares are up roughly 15% YTD (vs. SPX up 5%) after increasing 295% in 2016 (vs. SPX 10%). 2016 was an especially good year for the company as AMD returned to revenue growth after a challenging 2015, increased gross margins while keeping operating expenses flat, and returned to operating profitability. AMD also generated positive free cash flow and improved its balance sheet with a series of capital markets transactions including the issuance of common stock and new convertible notes due in 2026 during in Q3 of last year, which lowered interest expenses and improved overall liquidity.”

“There is a lot to like about AMD’s resurgence but, for now, we think much of the company’s improved execution over the past five years is reflected in the share price,” Roy concluded.

Out of the 23 analysts polled by TipRanks (in the past 3 months), 10 rate AMD stock a Buy, 10 rate the stock a Hold and two recommend to Sell. With a downside potential of 22%, the stock’s consensus target price stands at $11.13.

NVIDIA Corporation

Taking the same route, Roy assumed coverage on shares of NVIDIA with a Neutral rating and price target of $100.00, which represents a potential downside of 9% from where the stock is currently trading.

Roy commented, “While we view NVDA as the best positioned longer-term beneficiary of several multiple multi-billion dollar growth markets, in the near-to-medium term, lack of earnings leverage, high valuation and the potential for AMD to finally recover some graphics market share moves us to the sidelines for now.”

“NVDA shares are currently trading at 33x our calendar fiscal 2019 (calendar 2018) EPS estimate of $3.28, a material premium to the peer group average of 18x. While one could argue that NVDA’s positioning in multiple multi-billion dollar growth markets should warrant a hefty premium to its peer group, execution risk at such a lofty level is a concern. With this in mind, we think a fair value estimate of $100, or 30x our C2018 EPS estimate, is appropriate,” the analyst added.

Out of the 29 analysts polled by TipRanks (in the last 3 months), 16 are bullish on Nvidia stock, 11 remain sidelined, while only two are bearish on the stock. With a downside potential of nearly 3%, the stock’s consensus target price stands at $114.52.

Micron Technology, Inc.

Roy’s optimism makes him bullish on shares of Micron Technology. The analyst assumed coverage on MU with a Buy rating and price target of $30.00, which implies an upside of 27% from current levels.

Roy stated, “The supply environment for both DRAM and NAND remains tight, and we expect a benign environment through 2017. Demand-side metrics remain positive with higher density migrations in the smartphone markets coupled with continued density and speed requirement increases in rapidly growing markets related to data center and cloud applications continuing to drive DRAM pricing higher. With respect to NAND, recent industry data points suggest that 3D NAND ramps are progressing at a reasonable pace but higher layer (64) production remains challenging for Samsung. As such, we believe that overall industry capacity growth for 2017 is not likely to exceed the lower end of company forecasts.”

The overwhelmingly majority of analysts say Micron is a Buy. The average forecast is for the stock to hit $27.41 in the coming months, according to data compiled by TipRanks, a site that tracks and ranks analysts on their predictions.


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