The latest entry into the contest of who’s willing to make the most aggressive call on Advanced Micro Devices (AMD) stock? RBC Capital analyst Mitch Steves initiated coverage on AMD today, with an Outperform rating and price target of $40, which implies an upside of 25% from current levels. (To watch Steves’ track record, click here)
AMD investors reacted positively to Steves’ bullish move, bidding up the stock nearly 4% as of this writing.
Steves wrote, “AMD’s has had volatile results within the server market and we note that each product launch has resulted in materially different results from a revenue and stock price perspective. When the AMD K8 was released, the stock moved significantly as the product was superior to Intel’s competing line at the time. Since then multiple new releases have come out with 2006 being the most successful in recent memory with AMD taking 20%+ market share (product competitive with Intel). Finally, AMD Bulldozer was not competitive with Intel and AMD saw their market share fade entirely … until today. With the new Zen architecture and EPYC launch we think the most recent product is competitive and note that the second generation should surpass Intel from a performance vs. cost basis. This gives us belief in the AMD product cycle and potential to gain market share.”
“In our base case scenario we are already ~10% ahead of Street estimates for CY19E EPS. We think the Street is mismodeling the company’s server revenue numbers for CY19E and this would flow to the EPS line in a meaningful way as it is the highest margin segment for the Company. Assuming we are correct, this means the growth rate is similar in nature to Nvidia which makes AMD look cheap on a sales basis,” the analyst added.
Net net, the Street largely seems to echo Steves’ positive sentiment on the chip giant, considering TipRanks analytics showcase AMD as a Buy. Out of 19 analysts polled in the last 3 months, 10 are bullish on AMD stock, 8 remain sidelined, while only 1 is bearish on the stock. However, with a loss potential of nearly 14%, the stock’s consensus target price stands at $27.53. (See AMD’s price targets and analyst ratings on TipRanks)