Advanced Micro Devices, Inc.: Ethereum-Driven Upside Is Not “Enough to Keep the Stock Going” Long-Term, Says Morgan Stanley

Morgan Stanley's Joseph Moore recognizes cryptomania has captivated even teenage attention- but still spots a whopping 38% loss potential for AMD stock.

Pay no attention to the Advanced Micro Devices, Inc. (NASDAQ:AMD) weakness behind the Ethereum curtain. Or should you? One bear says that even though Ethereum is really taking off, with even teenagers taking notice of the explosive rise of Ether currency’s popularity, do not let the crypto craze fool you: AMD is not worth the bet.

Morgan Stanley analyst Joseph Moore may be amused that “kids in dorm rooms” are scrambling to get a piece of graphic card action. More than one of Moore’s analyst colleagues writing about Ethereum mining could point to various pleas for assistance in helping “teenage children” of investors hop on board the Ethereum mining train- with all its steamrolling revenue.

Yet, though the reward from mining ether is a big one for AMD, Moore argues that the upside could be hiding other weaknesses in the underpinnings of the chip giant’s business down the line. True, AMD may boast “leading market share in the space;” however with a shortage that “has been more intense,” this has “driven business” to rival Nvidia.

All the same, AMD has certainly benefited from the currency enthusiasm swirling around the Street. Acknowledging a meaningful rebound in revenue per GPU per day, the analyst is sending his AMD estimates on an upturn. For revenue for the current as well as the next quarter, Moore now anticipates $100 million more from AMD in revenue. The analyst bets the chip giant is likely to outclass consensus of $1.4 billion in its fourth quarter with a projected $1.55 billion, potentially scoring $1.43 billion for the first quarter of 2018, which would trounce the Street’s $1.24 billion. Additionally, for the fourth quarter, AMD could hit $0.09 in EPS, against consensus of $0.05, as well as $0.08 for the first quarter of 2018, which would rise well ahead of the Street’s estimate of $0.02. For financial revenue for 2018, Moore believes AMD could yield $5.87 billion in revenue and $0.35 in EPS.

Bigger picture, “Sequential growth in Ethereum, combined with improvement in pricing across the board, would certainly drive substantial upside to the quarter, even higher than whispers. However, we see this masking some weakness in the uptake of desktop and notebook processors, and certainly shortage in AMD graphics cards is limiting traction in the longer lived gaming business. Our checks in Asia continue to show limited traction for high end client CPUs, and Vega GPUs are simply unavailable. We see console builds down in 4q, and down again next year. The Spectre and Meltdown security exploits have certainly created enthusiasm in both client and server, as the patches have more negative impact on Intel CPUs than AMD, but in a practical sense we don’t see it driving business towards AMD. We’re do not think that dynamic – very strong cryptocurrency, with middling numbers everywhere else – is enough to keep the stock going short term, but the transparency of those business drivers remains limited,” contends Moore.

Therefore, the analyst reiterates an Underperform rating on AMD stock with a price target of $8, which represents a 38% downside from current levels. (To watch Moore’s track record, click here)

TipRanks highlights a cautious Wall Street tilting towards the bulls on the chip giant’s opportunity. Based on 17 analysts polled in the last 3 months, 7 rate a Buy on AMD stock, 6 maintain a Hold, while 4 issue a Sell on the stock. The 12-month average price target stands at $14.73, marking a nearly 14% upside from where the stock is currently trading.

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