Jon Hadad

About the Author Jon Hadad

Jon Hadad graduated from the University of Delaware with a degree in political science. Prior to joining the Smarter Analyst team, he was an industry analyst at a New York research firm.

Here’s Why Susquehanna Is Neutral on Advanced Micro Devices (AMD) Stock


After Tuesday’s earnings report drove the stock down, shares of Advanced Micro Devices (AMD) are rebounding today in hopes the sell-off was an overreaction.

While the report itself wasn’t particularly strong, with EPS and revenue both declining since the same quarter last year, the chip giant beat estimates for both metrics and analysts raised revenue estimates for next quarter. Furthermore, AMD has maintained its forecast for strong results this year, with the coming release of the 7nm chip.

While the company remains positive on its future and analysts expecting better performance, Susquehanna analyst Christopher Rolland is keeping his Neutral rating on AMD stock, with a $26 price target, which implies nearly 7% downside for the stock. (To watch Rolland’s track record, click here)

Though Wall Street raised its Q2 revenue expectations by $20 million to $1.53 billion, Rolland is cutting “estimates on a softer 2Q outlook” from the company, but remains “increasingly optimistic for AMD’s new 7nm product launches.”

AMD’s launch of its 7nm chip is expected to be a major boost for the company in its battle against rival Intel, who still faces challenges with its 10nm development. Rolland believes AMD’s new 7nm product launches throughout 2019, combined with continued 10nm struggles for Intel should make AMD the most competitive it has been in over a decade. Generally, smaller chips are faster and more efficient, which creates more demand from downstream customers (PC market).

While AMD is increasingly gaining share in the CPU market, the company stressed continued share gains but downplayed Intel shortages as the driver. But Rolland disagrees, saying “PC-SIGnals data [identify] strong laptop/ Chromebook market share gains for AMD that we believe are significantly correlated with Intel CPU shortages.” The analyst believes this will continues through much of the year, which may boost  “AMD’s market share story further.”

Looking ahead, while AMD management remains optimistic for the rest of the year, Rolland continues “to believe [guidance] is at risk.” The analyst says, “gross margin expansion, a strong driver of EPS growth in 2018, also disappointed slightly (perhaps declining Epyc sales hurt here),” as operating expenses were “worse than expected.” As the company is rolling out new products over the course of the year, Rolland says he would not be surprised for higher expenses to continue.

Overall, AMD is exciting investors with its 7nm launch this year, as well as its continued dive into other industries. Investors are buying into the stock, which up nearly 50% so far this year, after a disappointing end to 2018. TipRanks analysis of 21 analyst ratings show echoes the positive sentiment, with a a consensus Moderate Buy rating. (See AMD’s price targets and analyst ratings on TipRanks)

 

Read more: AMD: The Upside Opportunity Outweighs the Risk

 

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