Advanced Micro Devices (AMD) and Intel Corporation (INTC): Short-Term GPU and Notebook Trends Are Looking Good by 2Q, Says Top Analyst

Mizuho's Vijay Rakesh is unfazed that the first quarter's backdrop is not the strongest in terms of consumer trends for AMD and INTC- the atmosphere is poised to improve.

Here’s the deal on chip giants: Advanced Micro Devices, Inc. (NASDAQ:AMD) and Intel Corporation (NASDAQ:INTC); one of Wall Street’s best performing analysts is looking beyond PC ODM checks that reveal an Achilles’ heel in the first quarter for soft PC and notebook trends. After all, top analyst Vijay Rakesh at Mizuho says by second quarter, he is upbeat on a “rebound” for these semiconductor players. The back half of 2018 will be the time for these consumer trends to really shine, wagers Rakesh.

Therefore, the analyst maintains a Buy rating on AMD stock with a $17 price target, which implies a 70% upside from current levels, and a Buy rating on INTC stock with a $52 price target, which mirrors current trading levels.

“Our checks with PC ODMs indicate PC NB trends into the MarQ are modestly weaker than seasonal at down ~15% q/q. but potentially offset by better Purley Data Center and server trends. While PCs could be down ~15% q/q in the MarQ with weaker consumer, we believe 2Q18 could see better than seasonal PC NB builds up 10% q/q, combined with N-T GPU strength for AMD. But focus for INTC and AMD will be on Data center as investors watch Purley traction and signs of life with AMD’s EPYC. Reiterating our INTC-Buy-$52PT and our Buy on AMD as near term GPU and NB share trends should be positive,” highlights Rakesh, who is confident that near-term notebook market share and PU remain as “tight.”

AMD is looking at slightly better notebook market share in the first half of the year, with a bit of a jump in EPYC- although Rakesh recognizes cryptocurrency could become a headwind in the back half of the year. In that case, AMD’s EPYC may require a bigger lift in activity. AMD is adding steam in its notebook and PC market share, which Rakesh anticipates could sustain through the summer. Graphics vendors including Gigabyte are pointing to Crypto mining taking a roughly 45% slice of GPU shipments, appearing to be the “upside face of demand.”  GPU sales are soaring “strong,” something which Rakesh praises as a near-term tailwind for AMD. However, should a dip in Crypto mining hit in the back half, translating to waning pricing, EPYC sales will need to take a real step up to make up for this “slowdown.” China-based Bitcoin mining’s new Antminer E3 powered by a new Ethereum E3 will be a bigger threat by late 2018, notes Rakesh.

Rakesh anticipates Intel can yield roughly $13 billion per year in free cash flow with an approximate 3% dividend yield- all with prospective buybacks painting an expected tailwind for this year. Spotlighting a more robust back half of the year as far as the PC and Purely Data center backdrop, the analyst continues to bet with the bulls.

There is “no excess buildup” for Inventories, which Rakesh believes seem “inline.” Even though PCs and smartphones currently seem soft in terms of consumer demand, DRAM and NAND tailwinds in the back half of the year have this analyst rooting for AMD and Intel all the same: “That said, we would note even against a backdrop of weak PCs and smartphones down 10-120% q/q, memory DRAM/NAND pricing have been trending flat to up with memory channel inventories at only 1-2 weeks. That said improving PC builds into JunQ and stabilizing handsets should be a tailwind for DRAM-NAND into 2Q18.”

For Intel, the analyst is looking for first quarter revenue to hit $15.0 billion, EPS to reach $0.70, and GM to land at 60.2%. By the second quarter, Rakesh forecasts $15.6 billion in revenue, $0.80 in EPS, and 60.7% in GM- with potential for upside. Comparatively, the Street is betting on $15.1 billion in revenue, $0.71 in EPS, and 60.6% in GM from Intel in the first quarter, angling for $15.6 billion in revenue, $0.80 in EPS, and 61.2% by the second.

From AMD, Rakesh projects $1.55 billion in revenue, $0.10 in EPS, and a GM of 36.1% in the first quarter, looking for $1.52 billion in revenue, $0.08 in EPS, and 36.4% in GM by the second quarter. For context, the Street sets expectations for $1.56 billion in revenue, $0.09 in EPS, and 36.0% in GM from the chip giant in its first quarter earnings show for the year, forecasting $1.58 billion in revenue, $0.09 in EPS, and a GM of 36.5% by the second quarter.

Vijay Rakesh has a very good TipRanks score with a 76% success rate and a high ranking of #12 out of 4,771 analysts. Rakesh yields 30.8% in his annual returns. However, when recommending AMD, Rakesh loses 12.6% in average profits on the stock. When rating INTC, Rakesh garners 24.5% in average profits.

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