AMD Analysts Eye Valuation, PC Risks, Intel Competition After Q1 Report

Advanced Micro Devices, Inc. AMD reported fairly robust first-quarter results Tuesday, although the second-quarter revenue guidance was below Street expectations at the low end. 

The AMD Analysts

UBS analyst Timothy Arcuri maintained a Neutral rating on AMD shares and increased the price target from $48 to $52.

Morgan Stanley analyst Joseph Moore maintained an Equal-weight rating and $42 price target.

Oppenheimer analyst Rick Schafer maintained a Perform rating.

Rosenblatt Securities analyst Hans Mosesmann reiterated a Buy rating and hiked the price target from $65 to $70.

PC Risks For AMD Loom In 2H, UBS Says

AMD's data center business performed fairly well but not that great, given UBS' estimate that processor ASPs fell 10% sequentially, but unit share rose 8.5%, analyst Arcuri said in a note.

The PC component, though less important for investors, matters for the company and is fraught with risks in the second half, the analyst said. 

Despite the company updating the full-year guidance, the midpoint hasn't changed much, he said. 

The stock is priced as if the estimates are too low, with little accommodation for risk, Arcuri said. From a longer-term perspective, the analyst expressed wariness over what an improving Intel Corporation INTC manufacturing narrative could have on AMD's multiple.

See also: What AMD Analysts Expect From The Chipmaker's Q1 Report

Morgan Stanley: Earnings Estimates Need To Go Higher For Continued Stock Outperformance

AMD's quarterly results reflected strong PC growth and steady progress achieved in establishing a  server footprint, rendering a solid tone to the quarter, Morgan Stanley analyst Moore said.

Server revenues for the quarter were well below expectations, the analyst said. 

The PC/server segment revenues relayed by the second-quarter guidance are slightly below Morgan Stanley's positive expectations, he said. 

Moore said the stock has been rallying without upward revisions to high earnings expectations.

"As the stock continues to outperform, we do think we will need upside at some point, given that the stock trades at over 50x2020 EPS." 

‘Valuation Keeps Us Sidelined,' Oppenheimer Says 

AMD's second-quarter outlook fell short of the consensus as semi-custom begins to ramp, weighing down on gross margins, Oppenheimer analyst Schafer said.

The analyst said he expects semi-custom sales to grow materially in the second quarter and potentially more than double in the third quarter ahead of the launch of new PlayStation 5 and Xbox Series-X.

Anticipated server share gains in the second half are likely to offset the impact of lower gross margin semi-custom, keeping gross margin stable at 45%, he said. 

"YTD AMD has continued share gain momentum in PC and Server CPU with Ryzen and EPYC2, respectively, but we expect the "easy" server share gains to ebb in 2020 as INTC 10nm launch nears," Schafer said. 

Valuation keeps Oppenheimer sidelined, even as it is impressed by the revenue growth and share gain opportunity, Schafer said. 

‘We Like The Setup For Rest of 2020'

Overall, the first-quarter results and forward guidance were solid given the dynamics of the coronavirus pandemic, Rosenblatt's Mosesmann said.

For the company to almost maintain the 2020 sales growth guidance at 25%, plus or minus 5 points, compared to the previous outlook of 28%-30%, suggests the company could have a big pipeline of new designs for 7nm EPYC2 server CPUs, the analyst said. 

AMD's 7nm mobile Ryzen 4000 CPUs are hitting the notebook market precisely when the work-from-home wave is peaking, he said. 

"We like the setup for the rest of 2020 as market share accelerates in CPUs and in servers, which will continue when EPYC3 Milan launches in 4Q20 as was reiterated," Mosesmann said.

The analyst said the arrival of Intel's 10nm+ Tiger Lake and Xeon Ice Lake is relatively late and is therefore unlikely to slow the AMD 7nm onslaught until 2022/23 at best.

AMD Price Action

AMD shares were slipping by 3.58% to $53.52 at the time of publication Wednesday. 

Related Link: AMD Says Graphics IP Stolen, Vows To Take On Perpetrators