An AMD Vs. Intel Pair Trade

After a huge run-up in semiconductor stocks, some investors are growing concerned about lofty valuations. One of the best ways for investors to mitigate risk in a particular sector is to use pair trades; a new commentary from Stifel suggests Intel Corporation INTC and Advanced Micro Devices, Inc. AMD could be prime candidates.

The Analyst

Analyst Kevin Cassidy downgraded Intel from Buy to Hold and reiterated a $53 price target. Cassidy upgraded AMD from Hold to Buy and reiterated a $13 price target.

The Thesis

In the past six months, Intel and AMD shares have been headed in opposite directions, with Intel up 27.8 percent and AMD down 23.6 percent.

Intel stock no longer looks like a value, while the market is not fully appreciating the margin expansion opportunity at AMD, Cassidy said in a Wednesday note. (See the analyst's track record here.)

The analyst said he's been bullish on Intel throughout its Xeon Scalable upgrade cycle, but the cycle could soon come to an end.

“We now believe the upgrade cycle could peak in 2H18, while longer-term the company could face challenges from evolving data center architectures."

AMD stock has become oversold ahead of its EPYC server CPU ramp in the second half of the year, Cassidy said. Investors don’t seem to be appreciating AMD’s full lineup of PC CPUs, the analyst said.

“We are upgrading AMD shares as we believe they are oversold due to cryptocurrency concerns, while the company has potential for revenue growth and GM expansion from the ramp of its Epyc and Ryzen processors."

Based on Cassidy’s conclusions, investors who would like to maintain exposure to the semiconductor space and avoid some of the risks of a broad market downturn should consider a pair trade with Intel as the short side and AMD as the long side.