Advanced Micro Devices, Inc. (NASDAQ:AMD) has some investors tossing and turning this week as they brace the threat of new competition from China-based Bitcoin mining giant Bitmain; more specifically, investors fear the new Antminer E3 based on a new Ethereum ASIC. However, one analyst is not only unafraid, but joins the bulls as he dismisses these cryptocurrency concerns as massively overblown.
Stifel analyst Kevin Cassidy notes that the chip giant boasts an opportunity to reap revenue gains and expand its gross margins thanks to the ramp of its EPYC and Ryzen processors.
Between “margin expansion and valuation,” the analyst deems the stock “oversold,” and upgrades from a Hold to a Buy rating on AMD stock, sending shares rising nearly 4%. Cassidy has a $13 price target on AMD, which implies a close to 30% upside from current levels. (To watch Cassidy’s track record, click here)
Though the analyst acknowledges a roughly 20% loss in the stock’s value since the official Bitmain buzz first raced through Wall Street, he sees fit to step away from the sidelines all the same: “We believe that pent-up demand, as reflected by inflated retail costs for GPU cards, and the need to restock inventory channels due to limited supply are likely to continue to boost GPU shipments, despite the potential for softer cryptocurrency demand. AMD estimates that crypto-currency based revenue accounted for a mid-single digit percentage of total FY2017 revenue.”
In a nutshell, “We are upgrading AMD shares today for three reasons: 1) Valuation. We believe the market has oversold the AMD shares based on alternative crypto-currency mining solutions coming to market. 2) We suggest investors own AMD shares ahead of the company’s Epyc server CPU revenue ramp in 2H18. 3) AMD now has a full line-up of PC CPUs. We are increasing our estimates based on AMD’s solid execution in launching new products and the GM expansion driven by these new products,” Cassidy writes.
The analyst sees prospects for the giant to ramp its EPYC server processor revenue in the back half of the year and anticipates its server market share can jump up to around 4% this year- a nice rise against the estimated 1% seen last year. Whereas AMD’s company GM hit 34.2% last year, Cassidy sees GM scaling beyond 50%.
In our view, a complete PC CPU stack will allow AMD to gain overall market share and expand segment GM”
Additionally, from a new bullish perspective, the analyst is tweaking his second quarter revenue expectations for 2018, from $1.46 to $1.56 billion and non-GAAP EPS from $0.05 to $0.10. For context, the Street is looking for $1.58 billion in revenue from AMD and $0.08 in EPS. For the full year of 2018, the analyst likewise kicks up his revenue forecast from $6.1 to $6.31 billion and non-GAAP EPS estimate from $0.28 to $0.41. These expectations have been lifted ahead of the Street’s expectations for $6.3 billion in revenue and $0.33 in EPS.
TipRanks showcases a largely positive analyst consensus circling the chip giant’s shares. Based on 14 analysts polled in the last 3 months, 9 rate a Buy on AMD stock, 3 maintain a Hold, while 2 issue a Sell on the stock’s prospects. With a healthy return potential of 60%, the stock’s consensus target price stands tall at $15.64.