Don’t Get Excited About Advanced Micro Devices (AMD) Stock Just Yet

Advanced Micro Devices (AMD) worn a few hats in 2018. From March to April AMD stock wore the hat of relatively disliked chip stock. Then, from April to September, the stock wore the “red-hot chip stock” hat. From September to December, the stock put on the “ice-cold” hat. And now? AMD is wearing the “stuck in neutral” hat, at least if you ask MKM’s Ruben Roy who reiterates a Neutral rating on the stock with a $20 price target, which implies a slight downside potential from current levels.

Roy is modestly lowering his 2019 estimates as he expects a weaker first half for AMD than previously modeled, primarily due to continued GPU channel inventory digestion and the potential for lower semi-custom chip sales. The analyst does expects a stronger second half for 2019 as AMD continues to execute well on its product road-map. Furthermore, the analyst would view evidence of actual server market share acceleration as a reason to potentially get more constructive on AMD shares. However, for now, the analyst believes expectations are reflected in the current valuation with shares trading.

Roy noted, “Recent Computing and Graphics segment (~ 57% of overall revenue) results and outlook were weaker than expected primarily due to lower than expected channel GPU sales driven by excess channel inventory levels. While AMD has likely seen the worst of the inventory draw-down, recent industry data points suggest that we could see another quarter or two of inventory digestion before the channel is completely back to normal. Semi-custom revenue is also facing tough compares against 2018 as the current gaming console cycle continues to mature. Net-net, we are reducing our 1H revenue expectations modestly with expectations for a stronger 2H as new processor products continue to ramp into the data center and PC end markets.”

Overall, Wall Street is torn when it comes to whether to sing this chip giant’s praises or assess with an apprehensive gaze, as according to TipRanks, out of 25 analysts polled in the last 3 months, 12 are bullish on AMD stock while 11 remain sidelined and 2 bearish. However, with a potential upside of nearly 28, the stock’s consensus target price stands at $25.87. (See AMD’s price targets and analyst ratings on TipRanks)


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