3 AMD Analysts Dissect Chipmaker's Q4 Earnings, Guidance Beat

Advanced Micro Devices, Inc. AMD shares were retreating Wednesday despite the company's strong quarterly report.

The AMD Analysts: Rosenblatt Securities analyst Hans Mosesmann reiterated a Buy rating on AMD and increased the price target from $120 to $135.

Wells Fargo Securities analyst Aaron Rakers maintained an Overweight rating and $120 price target.

KeyBanc Capital Markets analyst Weston Twigg maintained a Sector Weight rating.

Rosenblatt Says AMD Could Double In Size: AMD reported better-than-expected fourth-quarter sales, thanks to across-the-board demand in client Ryzen CPUs, server EPYCC CPUs, client/data center GPUs, and game consoles, Mosesmann said in a note.

The bottom-line outperformance came about due to the better top line, the analyst said. 

The gross margin of 44.8% slightly trailed Rosenblatt's estimate, he said.

A better-than-seasonal PC and console market and continued strength in data center EPYC, Mosesmann said, drove the first-quarter outlook.

"The new server EPYC3 Milan, which helped drive improving Cloud/Enterprise strength through 4Q20 and into 1Q21, is giving AMD the best visibility in years with increased momentum in broader Cloud customers, workloads, and Enterprise." 

Among the analyst's key takeaways from the call: AMD seeing no Cloud inventory digestion, which was flagged by Intel Corporation's INTC for the first half of 2021.

The management also said the EPYC server business strengthened as 4Q20 progressed, he added.

These factors suggest Intel's Ice Lake is not capturing the design wins it hoped for as the specs of this product become more widely known to offset Milan's momentum, Mosesmann said. 

Given the secular opportunity and now $110-billion TAM, which includes the Xilinx, Inc. XLNX acquisition, the prospect for AMD doubling in size over the next several years is quite achievable, according to Rosenblatt. 

Related Link: AMD Analyst Projects Strong Start To 2021 For Chipmaker

Wells Fargo's Positive AMD Thesis Intact: Well's Fargo's positive thesis remains intact following AMD's solid quarterly results and above-consensus first-quarter and full-year 2021 guidance, Rakers said.

EPYC CPU server processor revenues may have been at $535 million, representing 65% growth, the analyst said.

The company said it has seen a twofold increase in EPYC-based cloud instances in 2020 and also expressed confidence in further expansion with an on-track full launch of 7nm Zen 3 Milan EPYC CPUs in March, he said. 

Looking ahead, AMD shares are likely to trade in reaction to expectations of continued PC demand strength and accelerating server CPU momentum, according to Wells Fargo.

Expanding traction of AMD's data center Instinct GPUs is likely to be an incremental growth/sentiment driver, Rakers said. 

High Valuation Competition Keeps KeyBanc Sidelined: AMD's share gain story is intact, with strong momentum in datacenter and an improving opportunity to expand its GPU share, Twigg said in a note.

To reflect the strong forward guidance, the analyst raised estimates for AMD.

Growth is likely to decelerate in 2022, as demand growth will likely slow as pandemic tailwinds fade and as share gains likely decelerate, he said. 

"Expectations for AMD remain very high, and with compelling new products and an ambitious new CEO at rival Intel, the bullish narrative on AMD could begin to weaken, limiting upside to its aggressive multiple (~45x our 2022 EPS estimate), in our view," Twigg said. 

"While execution and demand are strong, we remain Sector Weight due to high valuation and an increasingly competitive landscape."

AMD Price Action: At last check, AMD shares were moving down 3.98% to $90.94

Related Link: AMD Expected To Draw Strength From Intel's Weaknesses, Gaming Console Chips