Apple Inc. (AAPL) Growth Story Is Far From Over, Advanced Micro Devices, Inc. (AMD) Picking Up CPU Market Share

Rosenblatt's Hans Mosesmann says AMD has good odds for the notebooks and servers markets, GBH Insights' Daniel Ives cheers AAPL shares are "back on track" after rocky FQ2 guidance fears.


Two bulls are throwing their two cents into the Wall Street ring on tech giants Apple Inc. (NASDAQ:AAPL) and Advanced Micro Devices, Inc. (NASDAQ:AMD). One analyst believes 2018 is going to be Apple’s year, especially now that the dreaded ghost of rumored weak iPhone demand is no longer hanging over the titan’s shares. Another Street expert breaks down market trends and is unfazed by Intel as a threat to the chip giant

Let’s take a closer look:

 

Apple Shares Flash Enticing Risk/Reward

Apple shares are starting to pop up big time from “the dark lows” seen after the Street feared what was in store for the second fiscal quarter guide. Bad buzz of soft iPhone demand humming in the corners of the market has been subduing. In fact, one upbeat voice argues that Wall Street is just beginning to truly value the huge iPhone upgrade prospects glinting on AAPL’s “horizon” for fiscal 2018- especially with three fresh smart phones on the table lined up for launches.

GBH Insights analyst Daniel Ives calculates the tech titan boasts around 350 million iPhones shining in “the window of opportunity to upgrade” when looking at the upcoming year to year and a half.

Which ones will drive customers to swing for the upgrade? That is the question, one Ives believes will be contingent upon model as well as price point. For those consumers who chose to resist the iPhone 8/8+/X cycle, the analyst anticipates the next round of three iPhone releases could be just what AAPL needs to draw out latent iPhone users from the “fence” throughout 2018. The star of the titan’s show will shine light on Chinese consumers “front and center,” comments Ives.

Bottom line, “With FY18 guidance now hittable/beatable and inventory issues in the rear-view mirror given recent data points out of Asia, it appears Apple shares are now on the yellow brick road to hit the elusive trillion-dollar club (followed by Amazon which we believe will hit this mark in 2019) over the coming months in our opinion. Now all eyes are on the trifecta of a major iPhone product cycle for 2018, a ~$300 billion buyback potentially on the horizon to be announced in April, and a multiple re-rating that we believe will move shares towards the $200 range over the coming 3-6 months. While many of the naysayers which threw in the white towel over the last month saying the ‘Apple growth story is over’ are now revisiting their thesis, we believe the risk/reward on shares is compelling and the iPhone upgrade thesis (albeit delayed with softer iPhone X demand) is alive and well in Cupertino with a prove me period clearly ahead for Cook & Co,” Ives contends.

Therefore, the analyst reiterates a Highly Attractive rating on AAPL stock with a price target of $205, which implies a 14% upside from current levels. (To watch Ives’ track record, click here)

TipRanks underscores a large pool of optimists betting on the big AAPL machine. Out of 30 analysts polled in the last 3 months, 17 confidently rate a Buy on AAPL stock with 13 playing it safe on the sidelines. However, with a return potential of 8%, the stock’s consensus average price target notably stands tall at $193.52.

AMD Gunning for 20% of x86 CPU Total Addressable Market

AMD is poised to grab some meaningful market share in the coming years, wagers one bull.

Rosenblatt analyst Hans Mosesmann anticipates AMD’s fired up desktop steam is spelling out encouraging hints of good things to come from AMD’s dabble in the notebook and server markets

As such, the analyst reiterates a Buy rating on AMD stock with a $27 price target, which implies a 115% upside from current levels. (To watch Mosesmann’s track record, click here)

Not having seen too many dive in depth into market share trend implications in x86 “at a high level” for the fourth quarter, the analyst delves right in on back of Mercury Research.

When talking about dollar total addressable market (TAM) for the fourth quarter in terms of x86 desktop, notebook, along with server, Mosesmann bets AMD has seized around 3.8% of the market- a notable jump from approximately 2.4% year-over-year in growth and roughly 3.3% quarter-over-quarter.

“The share move is not a blip in inventories or some random event, it is the start of sustained x86 cycle that points to AMD capturing share for the next several years consistent, if not superior, with the 2003-2006 cycle culminating in ~25% unit share,” writes Mosesmann.

The analyst continues noting that “Desktop momentum [is] coming in big chunks,” asserting: “AMD grew over 200 bps y/y and nearly 200 bps q/q in desktop x86 CPUs in 4Q17. Amusingly, the year ended with just a few branded PC OEM models started to ramp on top of white box models. We expect share gains throughout 2018 as more branded PC OEM models are introduced, as the Ryzen + refresh at 12nm hits the market in 2Q18 (likely eliminates any Intel […] advantage in niche high-end gaming), and desktop APUs (Ryzen + Vega graphics integrated) start to flex their muscle in the budget desktop space (unambiguous superiority vs. Intel due to Vega).”

As AMD’s Ryzen models began to make their way to the market’s stomping grounds in the fall, the analyst finds the company has held onto notebook market share, and likewise notes it is anticipated for a two to three quarter slackening. The culprit? Design cycles inspiring less-than-ideal desktop trends. On the server front, in the fourth quarter, AMD’s market share tripled to almost 1% from merely around 0.3% year-over-year growth. Here as well, the analyst sees a three to four quarter stagger impacting desktops taking under account design cycles.

“Interestingly, in this x86 cycle we see that AMD has relatively more strength in notebooks (due to integrated graphics), and servers (due to memory bandwidth and PCIe connectivity advantages),” notes the analyst.

Does AMD have a server cost advantage that revs up at rising core counts against Intel? Mosesmann believes so, underscoring the difference of a packaging multi-chip module method. For those arguing that Intel dialing back prices to put a dent in AMD’s prospective market share risk, Mosesmann makes a bullish case that AMD’s “high end cost advantage pretty much destroys” this story. Mosesmann is putting odds on AMD here, betting that INTC’s 10nm roadmap is not even fully baked for the big leagues until the back half of next year on the desktop and servers front. Meanwhile, AMD is primed to at minimum forge the same share momentum experienced between 2003 and 2006; a time where the chip giant leapt from around 3% of the market to a whopping roughly 25%.

Down the line, Mosesmann predicts AMD will hit around 20% of the x86 CPU total addressable market, translating to roughly $50 billion total, where the company’s x86 CPU earnings would gravitate within a range of $2 to $2.50.

TipRanks highlights a cautious analyst consensus circling this semiconductor player. Out of 12 analysts polled in the last 3 months, 5 are bullish on AMD stock, 4 remain sidelined, while 3 are bearish on the stock’s prospects. However, considering these analysts’ expectations, it seems a healthy amount of optimism is baked into forecasts. The 12-month average price target of $15.28 marks a healthy upside potential of nearly 22% from where the stock is currently trading.

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