Advanced Micro Devices Has Substantial Risks But Continues To Move Toward Profitability, Recovering Sales

Reviewing Advanced Micro Devices, Inc. AMD's first-quarter results, Wells Fargo Securities said the company has substantial risks associated with falling sales and continuing losses. That said, the firm believes the company is continuing to demonstrate a recovery in sales and move toward profitability.

Executing Well

Analyst David Wong believes AMD continues to execute well, launching its Ryzen desktop processor in the March quarter and reaffirming its expectations that its Naples server processor (Zen-based servers) and Vega graphics processor families will launch in the June quarter.

Among the other planned launches, the analyst noted Ryzen 3 desktop processors will launch early in the second half of 2017, Ryzen mobile processors toward the holiday cycle in the second half of 2017 and Radeon Instinct accelerators in mid-2017.

Q1 Review

Wong noted the company reported 18 percent year-over-year revenue growth and guided June quarter revenue growth to 12 percent. The analyst indicated the March quarter revenues were in line with the mid-point of the company's guidance and the June quarter revenue growth guidance was above his estimate as well as the consensus.

Raising Valuation Range

Wells Fargo Securities has an Outperform rating on the shares of AMD and a $13–$15 valuation range, based on 2.5 to 3 times its 2018 sales estimate. This represents an upward revision from its previous valuation range of $11–$13.

"We think this multiple range is reasonable given AMD's continuing losses," the firm reasoned. The firm believes AMD has valuable expertise in microprocessor and graphics circuit design.

At the time of writing, AMD shares are plunging 20.30 percent to $10.85.