Analysts Impressed With AMD's Execution, Pipeline Following Solid Q1 Results

After Intel Corporation INTC disappointed with its first-quarter earnings report, Advanced Micro Devices, Inc. AMD's quarterly print came as a welcome relief for investors worried about the semiconductor sector's recovery.

The Analysts

Morgan Stanley analyst Joseph Moore maintained an Underweight rating on AMD with a $17 price target.

Bank of America Merrill Lynch analyst Vivek Arya reiterated a Buy rating and $35 price target.

Mizuho Securities analyst Vijay Rakesh maintained a Buy rating and raised the price target from $28 to $33.

Morgan Stanley Sees Solid Report Overall 

AMD's first-quarter report was largely in-line with expectations, with 23-percent year-over-year revenue declines for the first quarter, in-line second-quarter guidance and reiteration of full-year guidance, Moore said in a Wednesday note. 

The analyst said he expects AMD's 7nm product portfolio to help in the second half, but Morgan Stanley's outlook is below the implied second-half guidance, primarily due to softness in graphics.

By the fourth quarter of 2019, Moore said he expects servers to double year-over-year. The client business is likely to grow through the year from the low first-quarter level, he said. 

Morgan Stanley termed the first-quarter report as solid, but expressed surprise at the stock rallying in reaction to the results after the 50-percent advance seen year-to-date.

"We don't want to turn negative on the stock given the strong underlying story in a market drawn to such things, but do think that it's important to maintain valuation discipline given the longer-term challenges of competing with Intel and NVIDIA Corporation NVDA." 

See also: ON Semiconductor Analyst Turns Bullish, Expects Upside Surprises In Second Half

BofA Likes Guidance, But Sees Little Room For Error

Despite the weak demand environment flagged by Intel, AMD impressively maintained its outlook for high single-digit sales growth in 2019, Arya said. The guidance comes despite a 20-percent drop in console sales and tougher compares in graphics, a sector that was boosted last year by crypto sales, he said. 

BofA is maintaining its above-consensus estimates and projects that sales growth will accelerate from 8 percent in 2019 to 22 percent in 2020 on the back of broad-based growth in CPU, GPU, semi-custom and emerging game streaming markets.

AMD said the next-gen 7nm-based product launch remains on track, with its critical server "Rome" CPUs likely to be launched in the third quarter, according to BofA. 

GPU sell-through accelerated sequentially and improved channel inventory, and sales are expected to return to growth in the second quarter, Arya said, citing the chipmaker. The analyst noted that gross margin expanded.

BofA expressed concerns about the spike in operating expenditures that AMD guided for in the second quarter and the 50-percent increase in second-half sales that's implied by the company's full-year guidance, leaving little room for error. 

Mizuho: AMD 'Well-Positioned'

AMD's in-line second-quarter revenue guidance and 41-percent gross margin guidance reflects continued ramps of Ryzen and EPYC that are driven by increasing adoption in PC and desktop, Rakesh said in a Wednesday note. 

The company's comments on good Radeon GPU sell-through and improved channel inventory are positioning it for strong second-half GPU revenue, the analyst said. 

The share of data center to total revenue remained unchanged at 15 percent in the first quarter, Rakesh said, adding that Mizuho sees Rome and Vega picking up in the second half.

"We believe AMD continues to see server market share of 10% by 1H20," the analyst said. 

"With the GPU overhang removed, and AMD maintaining its guide for a 2H ramp with Rome and 7nm gaming Navi, and a targeted ~10% data center share by 1H20, AMD is well-positioned."

The Price Action

AMD shares were up 1.63 percent at $28.08 at the time of publication Wednesday. 

Related Link: Big Chip Q1 Earnings Preview: A Focus On Industry Downturn, Product Delays, Competitive Dynamics, New Tech

Photo courtesy of AMD.