AMD Delivers Q2 Beat, And BMO Promptly Downgrades The Stock

Seeing unfavorable risk/reward opportunities ahead, BMO analyst Ambrish Srivastava downgraded Advanced Micro Devices, Inc. AMD to Market Perform and set a $15 price target.

“We believe shares of AMD are fairly valued at current levels and are factoring in a lot of continued favorable news and earnings power, which we do not see materializing," Srivastava wrote. "While we laud AMD for near-flawless execution on its product road map, and expect the company to take share in all the new markets it is targeting, we just do not see meaningful ensuing earnings.

"Compared to our earlier stance when we had found the risk/reward very attractive, at current levels, we do not see an attractive risk/reward profile.”

4 Key Takeaways

1. AMD reported earnings that topped expectations and management offered strong guidance.
2. Q3 revenue should continue to grow, but so is the expected share count.
3. 2017 top-line expectations are now much higher.
4. While cryptocurrency demand remains strong, management noted this demand might not last forever.

A few negatives? Operation expenses were higher than expected, AMD is seeing inventory declines and cash flow is still negative. However, AMD is expecting positive free cash flow in 2017.

Overall, “We see our concerns regarding earnings power coming to the fore, whether due to higher share count, or due to negligible incremental fall-through to margins from new products, or from a combination of both,” Srivastava said.

Shares of AMD were trading up 8.4 percent at $15.30 in Wednesday’s pre-market session.

To take a deeper dive into AMD’s Q2 earnings beat, visit Benzinga Pro.