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Rosenblatt: Buy AMD Stock Ahead of Q2 Earnings and Toss Aside Intel (INTC)

The semiconductor titans are set to release quarterly earnings reports next week and Wall Street’s focus is on AMD (AMD) and Intel (INTC). The two companies are entering Q2 earnings with diverging results in the market over the last year. While AMD’s stock almost doubled this year, Intel’s stock hasn’t gained any ground.

Intel dominated the CPU chipmaking market for a long time, but this is rapidly changing. AMD just released its new slate of chips, which have 7-nanometer (nm) technology. AMD will begin selling these chips in the third-quarter, whereas Intel will have chips with 10 nm technology out during the fourth-quarter.

Rosenblatt analyst Hans Mosesmann released his earnings preview for the semiconductor industry in Q2 2019. The key takeaway: “We deal with the continuation of the current cyclical bottoming process.” With the Huawei drama still unfolding Mosesmann isn’t optimistic on the broad industry for this upcoming quarter, but he is bullish on a few names, the most prominent one being AMD.

Mosesmann predicts that AMD will deliver on its $1.52 billion guidance and $0.08 non-GAAP EPS estimates. The analyst also expects AMD’s Q3 guidance to be above his own estimate of $1.85 billion in revenue, a figure that would represent a 21.7% q/q increase. The consensus estimate for AMD’s Q2 revenue is $1.96 billion, a figure that Mosesmann believes is too high. Beyond Q2 and Q3, Mosemann thinks that “the high-single digit sales growth guide for 2019 [is] conservative and for the Street an emerging realistic possibility.”

Regarding Intel, Mosesmann expects “in-line results to our and consensus sales and non-GAAP EPS of $15.7 billion and $0.89, respectively.” With AMD’s massive launch of its new CPU lineup, the analyst believes there is some risk to the prior forecast of low-mid teens quarter-over-quarter sales growth.

As Intel’s new 10 nm chips are only scheduled to be ready around the Christmas holiday season, the company has cut prices on its current CPUs by 10-15%. Mosesmann criticized the company saying, “Intel will be cutting CPU prices not as a predator and position of strength, but as prey and position of multi-year weakness. Interestingly, this has been the historical narrative for AMD’s multiple near-death experiences over the years; but now it is reversed. The Street has yet to comprehend the significance of this role reversal.”

All in all, Mosemann rates AMD as a Buy with a $42 price target and has a Sell rating on Intel without suggesting a price target. (To watch Mosemann’s track record, click here)


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