Analysts Upbeat On AMD's Product Roadmap, Execution

Advanced Micro Devices, Inc. AMD reported third-quarter results, with fourth-quarter revenue guidance indicated to come in line or below the consensus.

The Analysts

Morgan Stanley analyst Joseph Moore maintained an Equal-Weight rating and $32 for shares of AMD. (See his track record here)

Wells Fargo Securities analyst Aaron Rakers maintained an Outperform rating and $40 price target. (See his track record here)

Bank of America analyst Vivek Arya reiterated a Buy rating and $40 price target. (See his track record here )

Benchmark analyst Ruben Roy maintained a Market Weight rating. (See his track record here)

Theses

Morgan Stanley: AMD Is Executing Well

Microprocessors sales were stronger than expected in all segments in the third quarter but graphics remained weak, Moore said. The analyst sees this as a positive outcome, as microprocessors are a much larger market with higher margins.

Moore is surprised at the shift toward processors not helping gross margins more in either the third quarter or the fourth.

"We remain convinced that the company is executing well and is in a strong position for growth," he wrote in a note. That said, the firm isn't convinced there's upside to its calendar year 2020 estimates, which shifts the onus of achieving stock price outperformance on further multiple expansion.

See Also: Intel Analysts Reflect On Data Center Strength, Product Roadmap And Competition

Wells Fargo: Positive Thesis Is Unchanged

Rakers said AMD reported strong implied client CPU upside by way of market share gains but weaker than expected server CPUs results. The analyst said the company's ability in the fourth-quarter guidance should support shares.

Rakers also noted the company provided consistent positive commentary on the second-gen EPYC Rome server CPU ramp, reiterating its expectations of a double-digit market share by mid-2020, strong broad-based adoption and a positive ASP uplift. As such, Wells Fargo raised its revenue and EPS estimates for 2020 and 2021.

BofA: Any Volatility Is Particularly Attractive Opportunity

AMD reported record sales in the third quarter and also guided to record sales for the fourth quarter, which was in line with the Street estimate, Arya said.

Notwithstanding the soft server sales and below-potential gross margin, the analyst is positive on AMD for three reasons:

• Excluding consoles, sales are poised for over 20% growth in 2019 and 2020, well ahead of Intel Corporation INTC and NVIDIA Corporation NVDA and the broader semiconductor market.
• Gross margin is growing steadily, potentially increasing to 44% in 2020 and possessing long-term potential of 45%-50%.
• AMD is exposed to some of the best cloud/enterprise customers and end markets in semiconductors.

BofA maintained its 2020 pro forma EPS steady at $1.10. The firm views any volatility as a particularly attractive opportunity.

Benchmark: Current Valuation Reflects Continued Execution

The largely in-line results and fourth-quarter outlook were a bit disappointing, considering the higher 2019 expectations earlier this year, Roy said.

The analyst believes AMD continues to execute well on its new product roadmap. However, incremental market share gains for server CPUs and meaningful gains in datacenter GPU share may be difficult to come by, as the competitive landscape continues to evolve.

"As well, it remains to be seen how aggressive Intel will be with pricing if AMD does get closer to achieving its "double-digit" server CPU market share next year," Roy wrote in a note.

Benchmark is of the view the current valuation already reflected continued management execution.

Olivetree: Bull Case Is Quite Intact

AMD's stock isn't likely to have much downside, although it could be a "both a good near dated call sale candidate and/or at the right levels a good put sale candidate," according to Olivetree Strategist Dan Forman. He said the bull case is quite intact, given the highest quarterly server CPU revenue since 2006.

AMD expects double-digit CPU share in servers by the middle of next year, Forman added. However, he expressed concerns about inventories not coming down yet.

On competition, Forman said he views the rivalry as aggressive.

The Price Action

AMD shares were down 1.6% to $32.49 at time of publication. The stock is still up about 79% in the year-to-date period.