On the heels of the 45th annual J.P. Morgan Global Technology, Media, and Telecom Conference (TMT), J.P. Morgan analyst Harlan Sur is spilling his take from neutral to bullish on three leading chip makers: Advanced Micro Devices, Inc. (NASDAQ:AMD), NVIDIA Corporation (NASDAQ:NVDA), Micron Technology, Inc. (NASDAQ:MU). Which growth companies are on the rise, and which ones still need to tread more water before gaining Sur’s surefire conviction?
In one triangular corner, we have AMD- a chip giant who may teeter on a semi-custom struggle, with growth likely to take a dip. Nonetheless, the company plans to not only steal back its strength in PC unit share, but also take center-stage in the data center market. In a second corner, there is NVDA, hoping to solidify its future growth irons in the fire with automotive dollar content on the brink of doubling, thanks to a new alliance with Toyota. In the third corner towers Micron, the sole chip giant to elicit Sur’s full vote of confidence, racing forward with potential to become king of the automotive memory world.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, five-star analyst Harlan Sur is ranked #301 out of 4,571 analysts. Sur has a 69% success rate and garners 17.3% in his annual returns. When recommending AMD, Sur earns 0.0% in average profits on the stock. Additionally, when suggesting NVDA, Sur realizes 0.0%. When rating MU, Sur yields 16.7%.
Let’s dive in:
AMD to Capture Back PC Unit Share Along with 10% of Data Center Market
AMD CEO and President Dr. Lisa Su presentation at the conference has not tilted Sur away from his cautious stance on the chip giant.
True, AMD expresses assurance that the giant will capture more unit share in PCs to return to its former heyday. Likewise, Dr. Su pointed to an objective to dominate 10% of market share in data center within the next coming years. By the second half of this year, Vega-based gaming and professional graphics should “soon” generate some buzz amongst consumers. Gross margin even shows upwards of 36% potential for 2018, with Sur expecting possibility for upside thanks to speedy uptake in datacenter.
However, one challenge Su points out boils down to semi-custom, which is unfortunately “[…] not likely to be a big growth driver, potentially down this year. AMD does not expect semi-custom to be a big growth driver going forward. Furthermore, with the current console systems being on the market for ~5 years, semi-custom sales may actually decline this year. For the 3rd of 3 new semi-custom opportunities, AMD sees the revenue opportunity between 2018 and 2020 (and mentioned it was not in gaming).”
As such, the analyst reiterates a Neutral rating on AMD with a price target of $11.50, which represents a just under 5% increase from where the shares last closed.
Another takeaway the analyst highlights is the chip giant’s lack of enthusiasm to license IP, as he opines, “AMD isn’t keen to license IP to enable a competitor […] (i.e. Intel). AMD will continue to defend patents, consider patent sales of non-core IP and selectively license IP, but does not intend to morph into an IP licensing company […]”
On a positive note, “AMD expects that it can get back to its historical unit share in PCs (mid-teens in notebook, high-teens in desktop). Furthermore, as AMD is addressing more profitable segments, the team expects its revenue share to move closer to unit share. Of note, AMD has not seen any unusual activity by Intel in the market such as employing pricing tactics,” asserts Sur.
TipRanks analytics indicate AMD as a Hold. Out of 17 analysts polled by TipRanks in the last 3 months, 6 are bullish on AMD stock, 8 remain sidelined, and 3 are bearish on the stock. With a return potential of 6%, the stock’s consensus target price stands at $11.71.
NVDA Gearing Up For More Growth, Ready to Double Auto Dollar Content
NVDA CFO Collette Kress revealed expectations for growth opportunities in artificial intelligence (AI) and deep learning as well as automotive dollar content to flood over twice over. Additionally, with R&D investment strategies that will only fuel further growth, Kress has an upbeat vision for the chip giant.
Considering that just three weeks prior, the giant brought to light Toyota’s decision to use its autonomous driving technology, Sur now anticipates, “Automotive dollar content to more than double. […] NVIDIA has been working in automotive for 8 years and its business is largely in infotainment today for premium automobiles. Current dollar content is in the range of $50-$100 and NVIDIA believes its content can more than double as we move toward autonomous driving as NVIDIA provides more value for customers including software and algorithm support.
Moreover, “Gross margin expansion expected as NVIDIA demonstrates performance and TCO benefits to customers. While NVIDIA did not provide any quantitative targets, the team believes that with the significant value add it can bring to the table such as superior hardware / software and improved total cost of ownership (TCO), gross margins should expand over time,” Sur elaborates.
However, for now, the analyst does not see enough to be swayed from the sidelines, reiterating a Neutral rating on NVDA with a price target of $122, which represents a close to 14% decrease from where the shares last closed.
Yet, “Shareholder returns strong,” contends Sur. Underscoring NVDA’s intent to keep returns robust, the analyst surmises, “Balancing growth initiatives with shareholder returns, NVIDIA aims to be ‘best of breed’ in terms of shareholder returns. NVIDIA returned 85% of FCF since FY13 to shareholders.”
TipRanks analytics exhibit NVDA as a Buy. Based on 21 analysts polled by TipRanks in the last 3 months, 12 rate a Buy on NVDA stock, 7 maintain a Hold, while 2 issue a Sell. The 12-month average price target stands at $13.0.75, marking a nearly 8% downside from where the stock is currently trading.
Micron’s at the Top of the Memory Leaderboard for Automotive
Micron CFO Ernie Maddock gave his blessing to Sanjay Mehrotra as a “fantastic” selection to be the new CEO to lead the chip giant as he laid out a confident roadmap ahead.
The only real issue for Sur lies in some DRAM and NAND “tightness” circling bit supply growth underwhelming bit demand growth. However, seeing broader DRAM demand, better server and mobile pricing, balanced supply and demand for NAND, a stronghold in the automotive market for memory, and encouraging moves forward in the SSD segment, Sur still sees more than favorable odds on Micron.
Therefore, following the conference, the analyst reiterates an Overweight rating on MU with a price target of $38, which implies an almost 28% upside from where the shares last closed.
First, the analyst notes that from a DRAM perspective, the chip giant is in even more solid standing these days, elaborating, “Compared to a few years ago, MU sees broader demand in DRAM. Server and mobile pricing has been more stable than in PCs. Mr. Maddock said it’s reasonable to assume that contract prices can continue increasing as spot pricing remains relatively stable and above current contract pricing”
Even if some DRAM and NAND constraints exist, “NAND supply / demand likely to remain in balance. Though supply growth is likely to increase next year, with strong and elastic demand, Micron believes S/D fundamentals to remain in relative balance over the next few years,” continues the analyst, content in Micron’s long-term stability.
The road to the future appears to rev with an automotive engine, with Sur commending Micron’s spot on the leaderboard in terms of memory. Sur believes, “MU leads in memory for Automotive,” adding, “Micron has focused on the automotive market by meeting stringent quality requirements and assured supply. Micron is already qualifying components that will be put in 2019 and 2020 automobiles.”
As the giant is “executing on [its] SSD roadmap,” Sur cannot help but be bullish on this giant’s prospects, concluding that “Micron continues making progress on its client and enterprise SSD business anticipating share gains in SSDs.”
TipRanks analytics show MU as a Strong Buy. Out of 18 analysts polled by TipRanks in the last 3 months, 15 are bullish on Micron stock, 2 remain sidelined, and 1 is bearish on the stock. With a return potential of 29%, the stock’s consensus target price stands at $38.50.