The Sell-Side Reacts To Advanced Micro Device's Q3 Earnings

Advanced Micro Devices, Inc. AMD stock tanked more than 12 percent on Wednesday after the company reported third-quarter earnings that clearly disappointed the market. A number of Wall Street analysts weighed in on AMD following the report.

Here’s a rundown of what they had to say.

Voices From The Street

KeyBanc analyst Michael McConnell said gross margin guidance was the biggest disappointment.

“Gross margin was guided to 35.0%, flat q/q and lower than our estimate of 35.4%, likely due to the ramp of the margin-dilutive Ryzen mobile APUs, slower sales of the higher-margin Ryzen desktop CPUs, as well as the IP licensing benefit in the 3Q being only one-time, despite a higher CG mix and higher ASPs on the new Xbox SoCs,” McConnell wrote.

BMO Capital Markets analyst Ambrish Srivastova said free cash flow was a disappointment.

“Despite what appears to be a strong rollout of its products, the impact to GM appears to be minimal, while opex continues to creep higher,” Srivastova wrote.

See Also: Advanced Micro Devices Beats Q3 Estimates, But Stock Falls

Baird analyst Tristan Gerra said AMD is on track for meaningful market share gains with its new products.

“Multiple product ramps should continue to fuel market share growth in 4Q and throughout 2018 for both CPUs and GPUs, in our view,” Gerra wrote.

JPMorgan analyst Harlan Sur said AMD is executing well, but market share gains are likely temporary and the market is already pricing in earnings that are still years away.

“We believe AMD continues executing on its product roadmap and is on track to deliver >20% revenue growth this year and we model further double-digit % revenue growth next year,” Sur wrote.

Stifel analyst Kevin Cassidy said revenue growth was impressive but margins were not.

“While AMD’s well publicized new PC, GPU and server CPU product launches are ramping into higher volume shipments and should be an increasing mix, the lack of sequential gross margin expansion has us questioning how the customers are valuing these new products or whether the market acceptance is slower than anticipated,” Cassidy wrote.

Jefferies analyst Mark Lipacis said investors should be buying the dip in AMD shares and that licensing weighed on margin guidance.

“We estimate GMs increase 160 bps ex-licensing (260 bps including mix) in 4Q, and that Vega gaming GPU growth in Q4 trumps crypto decline-if there is any,” Lipacis wrote.

Loop Capital analyst Betsy Van Hees said an uptick in spending, flat gross margins and a lack of transparency should concern investors.

“While the Q3 beat was impressive, the quality of the beat is unclear given the lack of transparency on how much revenue came from the one-time IP revenue deal, and we were disappointed with the flat QoQ GM guidance of 35% for Q4 as we expected an uplift given the mix shift to higher ASP and GM CPU and GPUs from the lower GM semi-custom SOCs,” Van Hees wrote.

Canaccord Genuity analyst Matthew Ramsay said investors need to ignore the short-term volatility and ride the long-term AMD wave.

“While we recognize 7nm roadmap execution and competitive risks remain, we believe AMD's new products across the PC, GPU, and server segments should result in gradual market share gains and yield materially higher gross margins versus current levels,” Ramsay wrote.

Ratings And Price Targets

After a mixed quarter, Wall Street analysts have mixed feelings about AMD stock:

• KeyBanc has a Sector Weight rating and no target.
• BMO has a Market Perform rating and $15 target.
• Baird has an Outperform rating and $20 target.
• JPMorgan has a Neutral rating and $16 target.
• Stifel has a Hold rating and $13 target.
• Jefferies has a Buy rating and $19 target.
• Loop Capital has a Hold rating and $13 target.
• Canaccord has a Buy rating and $20 target.

See Also:

Loop Capital On AMD's Q3: Lack Of Transparency Was A Concern

AMD Shares Pull Back; Jefferies Says Buy The Dip