Northland Downgrades AMD On 'Irrational Expectations'

Advanced Micro Devices, Inc. AMD has been one of the biggest market winners of 2018, but one Wall Street analyst said Thursday that the AMD rally has finally run its course.

The Analyst

Northland Capital Markets analyst Gus Richard downgraded AMD from Outperform to Market Perform and raised the price target from $26 to $30.

The Thesis

The fundamental basis for AMD’s rally is valid, Richard said in the downgrade note. (See his track record here.)

With the stock up 208 percent year-to-date, the analyst said AMD’s market share opportunity is fully priced into the stock.

“While we expect numbers to go up, and [the] stock to continue to outperform between now and the end of the year as investors chase performance, we are downgrading shares on what we believe are irrational expectations of rate of change in financial performance." 

Richard estimates that AMD’s PC CPU output will be limited by production capacity for at least the next three quarters. While AMD has a window to gain market share from Intel Corporation INTC in the server business given Intel’s well-publicized delays, Richard said AMD’s best-case scenario for 2019 PC CPU revenue is $1 billion and its best-case scenario for server revenue is $1.6 billion.

That type of growth is certainly impressive, Richard said, but with the stock already up so much, the analyst said he sees little room for additional upside — even if AMD is able to maximize its potential and generate $9.6 billion in total revenue and $1.90 in EPS in 2019.

Price Action

AMD stock was down nearly 1 percent at $31.87 at the time of publication Thursday.

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