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AMD Is a Solid Company, but There’s Limited Upside Ahead, Says Goldman Sachs

Over the last few years, Advanced Micro Devices (AMD) has been a veritable gain machine. The huge market strides have come hand in hand with a bigger slice of market share, too. AMD has edged ever closer to rivals Nvidia and Intel and has steadily eaten away at the traditionally larger players’ dominance of the GPU and CPU markets, respectively.

However, Goldman Sachs analyst Toshiya Hari sounds a note of caution for the near-term, based both on the elevated share price, and concerns regarding a “potentially weaker PC market environment” in 2H20.

Although Hari nudged his CY20 revenue estimate for AMD slightly upwards from $8.548 billion to $8.553 billion, he reduced the EPS estimate for the same period from $0.88 to $0.85, reflecting a 2.8% change to the downside.

That’s not to say Hari has any issues with the overall health of AMD’s business. The 5-star analyst expects AMD to continue performing well, and said, “We view the company’s improving 1) competitive position in client/server CPU, 2) profitability, and 3) cash flow and balance sheet, positively. We also note that better wafer supply at TSMC, following trade restrictions on Huawei, could support upside for AMD.”

Nevertheless, Hari refrains from suggesting investors pull the trigger on AMD shares, as the analyst recommends a Neutral rating “primarily due to limited potential upside.” Indeed, his $50 price target implies shares could drop by 13% from current levels. (To watch Hari’s track record, click here)

Looking ahead, Hari’s key points to focus on - which could impact his rating in the future - include “1) better/weaker than expected PC end-demand, 2) rate of adoption of AMD-based solutions in the server space, 3) changes in the competitive dynamics vis-a-vis Intel, 4) execution on product/technology roadmap, and 5) margin execution.”

Several of Hari’s fellow analysts also stay on the sidelines, although not enough of them to quell a Moderate Buy consensus rating - based on 12 Buys and 9 Holds. With a $57.36 average price target, the Street sees the stock staying range-bound for now. (See AMD stock analysis on TipRanks)

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