A New Bear Challenges Future Upside Potential for Advanced Micro Devices, Inc. (AMD)

Joseph Moore downgrades AMD and chops his price target, believing cryptocurrency demand edge won't last.


Advanced Micro Devices, Inc. (NASDAQ:AMD) shares plummeted 8% yesterday and continue to fall 2% in pre-market trading today, just one week after the chip giant’s disastrous third quarter print sent the stock on a 13% fall.

What is causing investors to flee from the semiconductor once again? A new bear: Morgan Stanley analyst Joseph Moore and his mounting “cynicism” for upside to be feasible next year and onwards has led to stark pullback in shares.

On the heels of last week’s disappointing earnings, the analyst downgrades from Equal Weight to an Underweight rating on AMD stock while slashing the price target from $11 to $8, which represents a close to 25% downside from where the stock is currently trading. (To watch Moore’s track record, click here)

Keep in mind that even last year, this analyst already saw the writing on the wall, noting that the company failed to get the kind of “traction” they had sought in terms of the “enthusiast gaming market.”

Moore explains, “While Ryzen did meet the performance benchmarks that AMD claimed, making it a solid choice for workstations using highly threaded applications, the single threaded gaming performance has underwhelmed. While it has improved since launch, we note that just to cite one example, the recent PC Gamer magazine processor recommendations from September of 2017, suggests using Intel’s core i5 7600 as the best gaming microprocesor, Intel’s Pentium G4560 as the best budget gaming processor, and Intel’s Core i9-7900x as the best high end gaming processor.”

The magazine continued that even if AMD’s Ryzen 7 1700 earned the title of greatest “many core processor,” its lack of speed is an absolute Achilles’ heel. Meanwhile, with hopes riding on the company’s new Epyc server product line to save the day, even with “impressive benchmarks,” the analyst finds there remain “questions on how quickly it can turn to revenue.”

Moreover, Moore is critical of a slow-paced build for microprocessor momentum, and even if cryptocurrency gains help to offset this, the gains are not meant to last down the line. This will likewise hurt the company’s recent “graphics surge,” which Moore attributes to a stark rise in sales of graphics chips to cryptocurrency miners. “We expect cryptocurrency to gradually fade from here,” continues the analyst, who predicts that along with a massive downturn in cryptocurrency mining chip demand next year, he also expects “consoles to decline, and graphics to be flattish; we think that the core microprocessor business would have to grow by $880 mm just to hit Street numbers in CY18.”

Moore projects AMD to yield $5.77 billion in revenue, more bearish than the Street’s $5.89 billion, and $0.32 in EPS, falling under the Street’s estimate of $0.35.

Even if Moore still has a certain amount of admiration for what the chip giant has achieved at a mere “fraction” considering rival budgets in terms of microprocessors and graphics arenas, he is pessimistic on AMD’s future growth prospects when glancing ahead.

Wall Street has not turned on this semiconductor player just yet, considering TipRanks analytics exhibit AMD as a Hold. Out of 22 analysts polled by TipRanks in the last 3 months, 8 are bullish on Advanced Micro Devices stock, 9 remain sidelined, and 5 are bearish on the stock. With a return potential of 33%, the stock’s consensus target price stands at $14.52.

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