While excitement is building for Advanced Micro Device’s (AMD) 2019 release of its new 7-nanometer processing chip and the company is rumored to be playing a part of Sony’s PlayStation 5, some analysts are actually worried about AMD. By investing massively in its Ryzen and Navi CPUs that will be used in the new console, AMD has diverted focus away from its Vega GPUs, which competes against Nvidia in a PC market that is much larger than what the PlayStation 5 is expected to sell.
Baird analyst Tristan Gerra has reduced his estimates to adjust for semi-custom and GPU trends, maintaining his Neutral rating. The analyst still sees the stock increasing, but has lowered his price target to $23 (from $25). (To watch Gerra’s track record, click here)
Gerra sees significant growth for AMD’s EPYC and continued double-digit growth for PC CPUs, even as AMD has diverted focus away from the segment. Primarily, Gerra is excited about the company’s server potential, and forecasts EPYC’s contribution revenue to rise nearly 70% growth.
The growth potential for EPYC is huge, following an AMD and Amazon Web Services partnership that brings the server processor to the cloud-computing platform. AWS is the US’ leading cloud provider, and the agreement “marks a significant milestone in the growing adoption of (AMD’s) high-performance CPUs with cloud service providers,” according to AMD Datacenter and Embedded Solutions general manager Forrest Norrod.
But the analyst maintains his Neutral rating because, even with sky-high expectations for EPYC, he is concerned over semi-custom and GPU growth for 2019. Gerra is reducing “1Q and 2019 estimates (because of) Semi-Custom seasonality and continued inventory deleveraging impacting GPU sales.” He cites that “Asia supply chain checks suggest graphic cards inventory levels are near six months in China industrywide and three months at graphic card resellers, twice the normal levels, suggesting channel inventory deleveraging may drag into 1H19.”
Wall Street is moderately optimistic about AMD over the next year. The average price target of 24 analyst ratings tracked on TipRanks stands at $26.14, representing a 28% upside. Of the 24 analysts, 12 recommend Buy, 10 recommend Hold and two recommend Sell. (See AMD’s price targets and analyst ratings on TipRanks)