Do the boom-bust GPU demand cycle patterns of the past bode poorly for Advanced Micro Devices, Inc. (NASDAQ:AMD)? Goldman Sachs analyst Toshiya Hari tracks the history here, recognizing that jumping crypto price tags magnetize miners, thereby firing up demand for graphics processing units. Yet, the analyst likewise notes various near-term boost bust cycles that have not translated to the same kind of vault for long-term GPU unit gains.
Recognizing a negative skew to the chip giant’s risk reward, Hari makes a bearish call on AMD, believing rival Nvidia is the much better buy: “During the last BTC GPU cycle, shipments peaked at 15.1mn units in 4Q13 before declining 8%/quarter to trough at 9.4mn units in 2Q15, a dynamic that was even more pronounced for AMD, whose shipments declined 18%/quarter until troughing in 2Q15 (Exhibit 3). With regards to estimates, we would note that AMD’s out-year (2015) revenue estimate was revised up 18% by the end of 2Q14 before being revised down ~40% from the peak by the end of 2015 (Exhibit 5), while the fluctuation in Nvidia’s out year estimate was more muted on a relative basis due in part, we believe, to less exposure to the crypto market at the time (note given architectural differences, AMD’s GPUs have generally been favored more for mining than Nvidia’s).”
Though Hari lifts his first quarter of 2018 revenue by 9% and non-GAAP EPS by 50%, the second quarter boasts “incremental downside” to AMD’s revenue and EPS, as far as he is concerned. Though the analyst predicts Ethereum frenzy drove stronger than anticipated GPU sales in the first quarter, by the second quarter, Hari pays attention to a lower crypto-related guide for the rest of the year. Hari takes his 2018 revenue expectations down by 2% and non-GAAP EPS down by 4% accordingly.
As such, citing “uncertainty around crypto volatility,” the analyst reiterates a Sell on AMD stock while cutting the price target from $10.80 to $9.50, which implies a 4% downside from current levels. (To watch Hari’s track record, click here)
TipRanks indicates cautious optimism at play swirling around AMD shares on the Street. Out of 15 analysts polled in the last 3 months, 9 are bullish on AMD stock, 4 remain sidelined, while 2 are bearish on the stock. With a solid return potential of 54%, the stock’s consensus target price stands at $15.33.