Could Advanced Micro Devices, Inc. (NASDAQ:AMD) come to take the chip giant throne from Intel Corporation (NASDAQ:INTC)? Bernstein analyst Stacy Rasgon is still hedging his bets on AMD, but sees reasons for INTC to be in trouble. AMD past struggles keep the analyst cautious for now, but conversely, INTC’s rising risks have turned him downcast on its future.
Before we start, as usual, we like to include the analyst’s trackrecord when reporting on new analyst notes. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst analyst Stacy Rasgon is ranked #1,565 out of 4,504 analysts. Rasgon has a 56% success rate and realizes 3.5% in his yearly returns.
AMD’s Zen Launch Ready for Battle with INTC
Though Rasgon remains sidelined on AMD prospect’s for now, he anticipates Intel could be about to face some renewed competition from its rival chip giant. Particularly considering the fresh line of enhanced Zen products, while the analyst has been cautious in the past, he speculates if the tide is starting to turn for AMD. If so, this will not bode well for INTC.
“While we have too much history with Advanced Micro Devices to get behind the AMD bull case, it is apparent that the market is willing to believe. And if the market is right, especially on AMD’s server offerings, we see few scenarios where this doesn’t translate into problems for Intel given they currently own more than 99% of the marketplace. We note that the last time AMD launched a high end desktop and server chip was in 2012, and the company has since been limping along in those markets and ceding share to Intel (indeed, today AMD is virtually an afterthought in servers). However, the newest Zen products have just had their official launch […] with a 52%+ improvement in instructions per clock on the back of a brand-new architecture and a 2-node process jump. This puts AMD products (at least in theory) back in competition with Intel, whose own IPC improvements over the past couple of years have been marginal at best, and minimal over the last few generations,” Rasgon contends.
TipRanks analytics demonstrate AMD as a Buy. Out of 22 analysts polled by TipRanks in the last 3 months, 10 are bullish on AMD stock, 10 remain sidelined, and 2 are bearish on the stock. With a loss potential of 24%, the stock’s consensus target price stands at $10.92.
The Fall of Intel’s Cracking Empire
As Intel reveals first indications of “cracking” at the seams, Rasgon sounds the alarm on the chip giant, seeing fit to step from the sidelined to the bearish. In his new research report out today, the analyst downgrades from a Market Perform to Underperform on INTC while reducing the price target from $36 to $30, which represents a 17% downside from where the shares last closed.
Rasgon surveys unstable ground ahead for INTC, warning, “Datacenter is showing real signs of cracking, competition is increasing, growth opportunities are declining in quality, and competitor advantages in design/architecture are beginning to blunt whatever process advantages the company has left.”
Taking this into consideration, from the analyst’s eyes, valuations appear “unsustainable, and ripe for re-rating” and bullish cases once made for the giant are being “knocked down” “one by one.”
Moreover, “PCs peaked in 2011, and the argument now is not whether they will grow again, but rather around how rapidly they might decline. Datacenter growth goals have never played out as expected, and have now been reset in more ways than one. New growth opportunities are coming with increased investment levels, and worse economics, than the current business,” continues the analyst, who sees competition at steep levels that have not been witnessed at such an apex in many years. With opex and capex spending alike at all-time highs as the giant struggles “to keep their moat wide,” simply put, “This doesn’t sound like a company in their best position in years,” opines Rasgon.
Even if valuation paints a picture that says otherwise, the analyst foresees a murky road ahead, full of escalating risk considering potential share losses and pricing pressure alike; especially as the analyst predicts “[…] should new competition, in whatever form, prove credible enough to crack Intel’s strong pricing umbrella.”
Ultimately, Rasgon concludes critical of INTC that “[…] in a world where process technology migration is slowing, design expertise and architecture are likely to become more critical […] indeed, they have chosen this moment to de-invest in their PC efforts.”
TipRanks analytics exhibit INTC as a Buy. Based on 28 analysts polled by TipRanks in the last 3 months, 17 rate a Buy on Intel stock, 9 maintain a Hold, while 2 issue a Sell. The 12-month average price target stands at $41.95, marking a nearly 16% upside from where the stock is currently trading.