A Bear Sees Rocky Road for Advanced Micro Devices, Inc. (AMD) Ahead of Expectations for Next Year’s Sharp Graphics Dip

Morgan Stanley sees downside as more probable than upside come 2018 for AMD's graphics revenue.

For those who have like cryptocurrency mining’s recent impact on the chip makers industry, one bear has bad news for Advanced Micro Devices, Inc. (NASDAQ:AMD) investors: brace yourselves for a rocky 2018.

Morgan Stanley analyst Joseph Moore would not be surprised to see that by the first quarter of 2018, the profits that have fanned the excitement of the Street could “erode to the point that mining would cease to be profitable in areas with high power costs.”

Considering compared to this time half a year ago, the hype has already dialed back with room to crash further, the analyst reiterates an Underweight rating on AMD stock with a price target of $8, which implies a 27% downside from current levels. (To watch Moore’s track record, click here)

Already for this year, the analyst sees total graphics sales for Ethereum mining sinking to $800 million, with a stark 50% drop anticipated next year. Prices would have to rally for Moore to see anything other than downside as “more likely” than upside to his expectations for next year. Why does the crypto chips market pullback spell trouble out for AMD? Moore answers, “This could be more problematic for AMD, which has not been clear on the size of the exposure, than for NVIDIA, which has carefully outlined exposures and ensured that the Street models budget for significant declines.”

Keep in mind, “After a period of time, Bitcoin miners were able to develop ‘ASICs’, (or application- specific integrated circuits), semi custom chips designed for the Bitcoin mining application. Graphics chips were made obsolete for that application. This caused AMD significant headwinds, as Bitcoin declined, and channel partners who had been unable to procure AMD chips during the period of shortage had shifted resources to NVIDIA. While AMD had made little reference during the period of strength, it quickly became a central factor behind weakness in its graphics business,” contends the analyst, not seeing bright prospects ahead for this chip maker.

Most on Wall Street are not as bearish as the Morgan Stanley analyst, as TipRanks analytics exhibit AMD as a Hold. Out of 21 analysts polled by TipRanks in the last 3 months, 8 are bullish on Advanced Micro Devices stock, 9 remain sidelined, while 4 are bearish on the stock. With a return potential of 32%, the stock’s consensus target pr4ice stands at $14.72.

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