MKM Cuts Price Target on Advanced Micro Devices (AMD) Ahead of Q2 Print

MKM's Ruben Roy awaits more product traction in the higher-end market from AMD, finding this "elusive" for now.


MKM analyst Ruben Roy is getting a bit wary on Advanced Micro Devices (NASDAQ:AMD) in anticipation of next week’s first quarter print- but is getting more positive on market fundamentals as a whole. Therefore, though the analyst’s 12-month target expectations are sliced by $1, he likewise jumps up forward expectations. Roy spotlights more upside potential than downside risk waiting in the wings for the chip giant. That said, the analyst is “still waiting” to see higher-end product traction for the company’s slew of new releases on the table.

In his quarterly earnings preview, the analyst reiterates a Neutral rating on AMD stock while dialing down the price target from $14.50 to $13.50, which implies a just under 28% upside from current levels. (To watch Roy’s track record, click here)

The analyst looks for AMD to essentially meet its own guide along with the Street’s estimates next Wednesday evening, with consensus looking for around $1,566 million in revenue and $0.09 in EPS. Roy is slightly lifting his second quarter expectations that before had been under the Street, taking under account the latest industry data points pointing to a bit of an improvement in PC shipments in the first quarter. As the giant’s Ryzen Mobile fires up, Roy angles for rising PC momentum to make up for prospective softness in GPU sales in the second quarter. For 2018, the analyst dials up EPS from $0.32 to $0.39 and for 2019 the analyst boosts EPS from $0.42 to $0.50.

“Product execution continues,” notes Roy, who adds: “AMD expects to enterprise class 2nd generation Ryzen Pro availability during the second half of this year. AMD continues to execute on its product road-map strategy. However, we believe that expectations for customer traction of these new products, as well as AMD’s EPYC server processors, are built into AMD’s longer-term 40%+ gross margin target. For now, we believe that meaningful traction at the higher-end of addressed markets remains elusive.”

Bottom line, “While we believe that downside risk appears limited with AMD shares off 24% from late January highs (versus the SOX, which has declined 1% over the same time period), we believe potential upside from our fair value estimate will require more meaningful higher-end market traction for AMD’s new product offerings,” underscores Roy.

Overall, Wall Street is predominantly showcasing positive sentiment on the chip titan, with TipRanks analytics demonstrating AMD as a Buy. Out of 18 analysts polled in the last 3 months, 11 are bullish on AMD, 4 remain sidelined, while 3 are bearish on the stock. With a return potential of nearly 45%, the stock’s consensus target price stands at $15.23.

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