AMD Bear Admits Q4 Earnings Upside Is Likely On Cryptocurrency Strength

Advanced Micro Devices, Inc. AMD may report some big earnings numbers on Tuesday, but one analyst says traders should consider selling into any earnings strength.

The Analyst

Morgan Stanley analyst Joseph Moore maintains an Underweight rating and $8 price target for AMD.

The Thesis

According to Moore, AMD's stock could react positively to a fourth-quarter earnings beat driven mostly by cryptocurrency mining, a tailwind that could soon cease to blow. Moore said he believes Ethereum GPU demand will soon taper off and the market’s long-term expectations for AMD’s Zen architecture are too high.

“While we agree that AMD has made substantial progress with its ZEN architecture - we incorporate incremental $1.3bn in incremental sales for Zen across Desktop, Notebook and Server CPUs by 2018 - we see the stock pricing in an even higher number, or a longer multiyear runway for Zen,” Moore said in a note.

Moore also said AMD will likely face increasing competition from NVIDIA Corporation NVDA Volta gaming GPUs and will face headwinds from a maturing console cycle that's entering its fifth year.

Cryptocurrency demand is what has been driving the stock in recent quarters, however, and Moore said the type of price increases required to maintain that demand are unrealistic and unsustainable.

Morgan Stanley has an Equal-Weight rating and $222 price target for Nvidia and an Equal Weight rating and $43 percent price target for Intel Corporation INTC.

Price Action

AMD stock jumped another 2.4 percent to $13.25 Monday ahead of earnings and is now up 29 percent in January.

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Image Credit: Quintin Lin [CC BY-SA 2.0], via Wikimedia Commons