Earnings season is in full swing, and the reports are coming in thick and fast. Most companies are battling it out against themselves, trying to outdo expectations and provide reassuring outlooks for 2020 and beyond. Some companies, though, are engaged not only in besting their own estimates but also those of their closest rivals. Which leads us nicely into The Battle of the CPU Giants: Intel vs AMD.
Intel released its 4Q19 report following the market’s close on Thursday. The upbeat display was rewarded by the market, which provided an 8% boost to its share price by the close of Friday’s session. AMD is set to post its 4Q19 report after the close of trading today and investors are waiting to see if it can match its rival’s print. Using TipRanks’ Stock Comparison tool, we lined up the two alongside each other to give us an idea of what the Street thinks is in store for the chip giants in the year ahead.
Intel’s latest earnings seem to have taken the Street by surprise, and drove the stock to its best one-day performance in the last two years.
Revenue of $20.2 billion beat the Street’s estimate of $19.2 billion and exhibited a year-over-year increase of 8%. Adjusted EPS (diluted) came in at $1.52, beating the $1.25 consensus estimate and gaining 19% from the prior-year quarter. Of its six business segments, four displayed double-digit percentage growth; leading the way were the DCG (data center group) hitting $7.2 billion in sales, up from 19% last year, and Mobileye, whose sales increased even more, by 31%, to $240 million. The company’s guidance for 1Q20 is reassuring, too; Management expects revenue of $19 billion, along with EPS of $1.30. These imply 18% and 46% year-over-year growth, respectively.
For Susquehanna analyst Christopher Rolland, though, one thing remains baffling; namely, Intel’s full year guidance. Intel calls for revenue of $73.5 million, an increase of 2%, while EPS is expected to grow by 9% to $5.00 per share. The figures, according to Rolland, indicate an “utterly head-scratching 2020 full-year guidance implying a significant deceleration in the back half.”
The 5-star analyst said, “As good as near-term DCG results were, conversely, management offered equally bad 2020 full-year revenue guidance and commentary around a deceleration in cloud DCG in the back half of 2020… While the odd guidance left more questions than answers, we will at least try to frame those questions. How does Intel have such visibility into a 2H deceleration? Have they been told by PC OEMs and hyperscalers to expect this marked deceleration? Is this hinting toward a pushout of 10nm server? Is this competition weighing? Or just management’s own conservatism? We think a mix of all.”
The confusing print has Rolland reiterating a Neutral rating on Intel, while raising the price target to $62 (from $53), which implies an 8% downside from current levels. (To watch Rolland’s track record, click here)
The Street agrees. INTC’s Hold consensus rating breaks down into 10 Buys, 10 Holds and 8 Sells. The average price target comes in at $67.02 and implies a modest downside of 0.31%. (See Intel stock analysis on TipRanks)
Advanced Micro Devices (AMD)
So, on to Intel’s closest rival in the CPU market, AMD. Traditionally, the company has trailed Intel by some distance in terms of market share. The last two years, though, have seen AMD close the gap considerably. Bolstered by increasing market dominance, consistent execution, new products flying off the shelves, and using Intel’s shortages in the low end of the PC market to its advantage, the GPU giant was 2019’s star performer. It closed out the year by adding 148% to its share price and sitting at the summit of the S&P 500’s best performers of 2019. So, can the high-flying semiconductor leader keep up such a stellar performance in 2020?
In addition to setting its own bar very high over the last year, Intel’s Street beating performance has raised expectations for AMD’s report.
The company expects 4Q19 revenue to come in at roughly $2.10 billion; up 16.6% from the prior quarter. The Street anticipates seasonal 4Q19 revenue growth of 17% quarter-over-quarter as opposed to the typical -5%. This, according to Rolland, who also covers AMD, is a negative, as it sets a very high bar going into the print.
On the other hand, the Street anticipates 1Q20 revenue to be down -11.6% quarter-over-quarter, which, according to Rolland is worse than typical seasonality of -8.1%. However, the analyst sees this as a positive as it sets a lower bar for execution.
Rolland further added, “The Street is anticipating nearly 30% top-line growth for 2020. While seemingly ambitious, we note the following tailwinds: 1) CPU is exiting 2019 at the high point and if it follows typical seasonal patterns in 2020, it could contribute 15% top-line growth (before market share gains); 2) new gaming consoles with an ASP reset could contribute ~8% top-line growth; and 3) we expect server to continue to gain share from mid-single digits in 2019 toward 10% in 2020 (contributing ~7% top-line growth). Putting the pieces together, ~30% year-over-year is possible…”
Having said that, Rolland isn’t ready to join the bulls just yet. To this end, Rolland kept his Neutral rating on AMD. The price target, though, gets a bump, from $45 to $50, and implies modest upside of 0.4%.
And what does the Street think ahead of today’s report? 12 Buys, 11 Holds and 1 Sell coalesce into a Moderate Buy consensus rating. At $44.93, the average price target implies potential downside of nearly 10%. Tomorrow, though, should give a better indication of whether the next 12 months will see a continuation of AMD’s market crushing performance or whether it will finally start heading back down to earth. (See AMD stock analysis on TipRanks)