Baird Downgrades AMD: 'Expectations And Valuation Are High'

Advanced Micro Devices, Inc. AMD shares have jumped over 200 percent year-to-date, and a sell-side analyst said Monday that much of the good news is already priced into the shares. 

The Analyst

Baird analyst Tristan Gerra downgraded AMD from Outperform to Neutral and raised the price target from $20 to $28.

The Thesis

AMD's fundamentals have continued to improve, supported by strong execution at the 7nm node; prospects of increased market share in the medium term; share gains in PC chips due to shortages of Intel Corporation INTC chips; and the ramp of newly refreshed Athlon CPUs, Gerra said in the downgrade note. (See his track record here.) 

Baird raised its estimates for AMD.

Intel's announcement Friday of having "at least" the supply to meet its raised full-year revenue guidance implies that AMD's PC share gains may be limited by Intel's incremental capital investments, the analyst said. 

Stung by significant channel inventories, the weakness in graphics cards is likely to continue for another two quarters, Gerra said.

Baird estimates EPYC will account for 8 eprcent of AMD's total revenue exiting 2019, assuming a 10-percent market share.

"We now model EPYC's market share to reach 15 percent exiting 2020, driven by the ramp of 7nm-based Rome." 

That said, Baird expects AMD to be constrained by high PC share gain expectations in the wake of Intel CPU shortage; the deleveraging of the graphic cards channel inventory becoming a multiquarter dynamic; and an EPCY ramp outlook marred by likely retaliation from Intel with new architectures.

"We believe expectations and valuation are high, prompting our downgrade." 

The Price Action

AMD shares were up 2.42 percent at $31.64 at the time of publication Monday. 

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