Advanced Micro Devices, Inc. (NASDAQ:AMD) shares are rocketing almost 11% this morning on back of a beat that has the bulls in a buying frenzy this morning.
Susquehanna analyst Christopher Rolland writes, “We view the quarter as incrementally constructive (Ryzen/Epyc commentary), but the risks surrounding an Ethereum-related GPU hangover in 2H18 remain ‘under-addressed’.” Keep in mind, though this quarter proved to be a mark of improvement for the semiconductor leader, the “gorilla remains in the room,” leaving Rolland continuing to bet against AMD.
In reaction, the analyst reiterates a Negative rating on AMD stock while boosting the price target from $7.50 to $8, which implies a close to 26% downside from current levels. (To watch Rolland’s track record, click here)
For the first quarter, AMD trounced consensus expectations, reaching the analyst’s $1.65 billion estimate thanks to a rise in Radeon GPU and Ryzen CPU shipments. Yet, Rolland notes as a reminder of his downgrade to the bears, considering that up to a quarter of first quarter sales ($425 million) are due to Ethereum mining. The analyst presently biases a first quarter contribution to roughly $375 million, or a 23% slice of the company’s first quarter revenue, which notably is “still well above” the 10%, or $165 million related to mining. That said, the analyst anticipates the AMD management team is massively “underestimating” mining GPU purchases spanning the retail channel.
Overall, “In the near-term, AMD continues to benefit from GPU channel restocking (although this benefit should slow through the quarter), as well as initial channel stocking for Ryzen Mobile (and perhaps a bit of Ryzen 2 at the end of the quarter), all benefits we expect to moderate/ reverse in coming quarters. Positive was management’s commentary around Epyc server CPU shipments that doubled sequentially, although difficult to judge without context for magnitude. Disappointing was their reaffirmation of opex guidance at 28% of revenue, perhaps illustrating a lack of operating leverage. Overall, we modestly increase our price target […] on better Epyc/Ryzen commentary, but note substantial Ethereum-related GPU risks that remain,” Rolland concludes.
TipRanks indicates that consensus sentiment does not align with Rolland’s bearish take, with more cautious optimists among the mix than bears. Out of 21 analysts polled in the last 3 months, 10 rate a Buy on AMD stock, 7 maintain a Hold, while 4 issue a Sell on the stock. The 12-month average price target stands at $14.50, marking 49% in return potential for the stock.