Short-Term Performance Is Raring for an Outclass: Susquehanna
Susquehanna analyst Christopher Rolland is so confident on Advanced Micro Devices, Inc. (NASDAQ:AMD) ahead of the chip giant’s earnings this evening that he cheekily notes, “Even my mother knows AMD is going to beat” the Street. However, though the third quarter glimmers with the promise of upside, fourth quarter is not as clear-cut when it comes to the “magnitude” of AMD’s beat-worthy momentum. With rising CPU ASPs shooting up past 70% on back of the Ryzen launch, the company could be outclassing its own gross margin guide for the quarter by a whopping 34%.
Though short-term looks strong for the semiconductor player, which has prompted the analyst to lift his expectations, the long-term is hazy, considering this is a company that has relatively “underperformed the SOX since its 2Q17 earnings report.” Maybe this pull the bar down a notch when it comes to execution expectations, says Rolland.
In a cautiously optimistic preview of today’s print, the analyst reiterates a Neutral rating on AMD stock with a $15 price target, which represents a just under 7% increase from where the stock is currently trading. (To watch Rolland’s track record, click here)
Rolland explains, “We expect a solid beat and raise, although magnitude of 4Q17 beat is unclear. Better Ryzen units and ASP as well as mining GPUs to provide 3Q17 upside, while mining GPU (and perhaps Ryzen mobile) the big swing factor in 4Q17 guide.”
Additionally, the analyst continues, “While the launch of Ryzen Mobile should help 4Q17, the magnitude of the beat is heavily dependent on the contribution of mining related GPUs and management’s handling of these estimates (conservative?),” highlighting that as Ryzen is “gaining desktop share,” this “should provide ASP and GM uplift.”
Fourth quarter could stand to benefit from Ryzen mobile, as Rolland contends, “Ryzen mobile with integrated Vega graphics should help 4Q17 Compute units and ASPs. Checks in Asia suggest that even Lenovo, traditionally an Intel shop, will use Ryzen in some commercial laptops.”
Vega Underwhelms a Bit, But Cryptocurrency Demand to Snag Upside: Canaccord
AMD is looking enticing ahead of its third quarter print in the eyes of Canaccord’s Matt Ramsay, who has been a bull on this chip giant for well over a year now. Especially as momentum’s flames keep fanning for Ryzen desktop and the company’s EYPC server product lines alike, the analyst continues to expect long-term gains for the semiconductor player.
Therefore, in a confident earnings preview, the analyst reiterates a Buy rating on AMD stock with a price target of $20, which represents a just under 44% increase from current levels.
For bears who doubt AMD’s Vega GPUs, Ramsay says not to worry: “strong cryptocurrency GPU demand should overcome modestly disappointing power/performance metrics from new Vega GPUs against tight product supply, with reasonable expectations set for the Q4/17 Ryzen Mobile launch and a strong overall roadmap moving to 7nm across the portfolio during 2018.”
Ramsay continues, “While we raise our Q3/Q4 estimates slightly above consensus due to cryptocurrency GPU demand and remain well above consensus for 2H/18 and for long-term AMD revenue and earnings estimates, we anticipate a more gradual EPYC server revenue ramp over the first few quarters despite positive industry feedback and now deeper engagements with both Google and Facebook and remind investors that further near-term share count inflation from convertible debt remains likely. Finally, our industry checks indicate 7nm chip development timelines remain intact for what should prove even stronger products across AMD’s roadmap versus Intel during 2H/18 and 2019.”
The bigger picture may include some level of risk factor when the analyst takes under account roadmap execution as well as relentless competition in the chip making sphere, but overall, risk/reward points to upside for this semiconductor contender.
MKM Likes AMD Management’s Execution, But Believes INTC’s Shares Are More Attractively Valued
MKM analyst Ruben Roy is surveying key chip makers ahead of the dawning of the fiscal third quarter earnings season and notes that “broad-based demand trends remain favorable,” especially after his latest chats with supply chain participants. Roy angles for an encouraging volley of quarterly showcases from semiconductor stocks, whose values keep moving up the Wall Street scale. However, when it comes to Advanced Micro Devices, Inc. (NASDAQ:AMD) and Intel Corporation (NASDAQ:INTC), the analyst likes the value odds better for the latter.
Ahead of AMD’s third quarter results, the analyst reiterates a Neutral on the stock with a fair value estimate of $13, which represents a close to 6% downside from current levels. (To watch Roy’s track record, click here)
The AMD team’s outlook calls for third quarter revenue to rise 23% sequentially when looking at the midpoint, which translates to about $1,500 million, indicating a 15% year-over-year sales climb. Roy sees potential for the chip giant to land ahead of the guide and meet consensus expectations for the fourth quarter forecasting around 20% sequential gains.
Ultimately, “AMD continues to ramp new products and PC data points remain firm. While we believe that management has done a good job in keeping expectations for cryptocurrency mining related revenue in check, recent data points would suggest that this market remained stable through the quarter and, consequently, could drive modest upside to current expectations. While we continue to appreciate AMD’s execution, we still see shares as full valued at current levels given medium-term sales and earnings growth prospects. AMD shares peaked at 3.0x EV forward sales at the height of its server market share in 2006 and have averaged roughly 2.0x EV to forward sales in growth periods over the past 20 years. We maintain our fair value estimate of $13, which is based on the midpoint of these two levels, or roughly 2.5x enterprise value on our 2018 revenue estimate,” explains Roy.
Overall, Wall Street is positive on this tech stock, considering TipRanks analytics showcase AMD as a Buy. Out of 18 analysts polled by TipRanks in the last 3 months, 8 are bullish on AMD stock, 7 remain sidelined, and 3 are bearish on the stock. With a return potential of 2%, the stock’s consensus target price stands at $14.44.