Analyst Warns Of AMD Shares 'Melting Up' By Year's End, Says Stock Is 'Running Ahead Of Fundamentals'

Advanced Micro Devices, Inc. AMD shares have been on a tear, thanks to its strong product momentum. An analyst at Northland Capital Markets, however, thinks shares are ahead of the fundamentals.

The Analyst

Gus Richard downgraded AMD from Outperform to Market Perform and maintained his $36 price target, which suggests 12% downside from current levels. (See his track record here)

The Thesis

AMD is experiencing revenue momentum, as its PC and server revenues increased 59% sequentially and 81% year-over-year to $1.14 billion in the third quarter, Richard said in a note. He said this compares to a 16% sequential increase but a 2% year-over-year decline for Intel Corporation INTC on an apples-to-apples basis.

Richard estimates AMD's unit share at about 18% in desktop, 15% in notebooks and 5% in servers.

Notwithstanding the recent inroads made by AMD, incremental share gains could come more slowly in all these markets due to Intel's incumbency, the analyst said. As AMD's revenues increase, the incremental market share gains would be a smaller percentage of revenue.

The analyst expects AMD's year-over-year revenue growth to peak in the high 30% range in 2020 on server market share acceleration and a gaming console product cycle.

Some estimates at the high-end of consensus, according to Northland, are irrational exuberance.

"While shares are likely to melt up between now and the end of the year, we would not be chasing them," Richard wrote in the note. Northland also sees profit taking kicking in in the new year.

Price Action

AMD's stock traded lower by 2.8% to $39.84 per share at time of publication, off the multi-year highs hit earlier this week.

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