Advanced Micro Devices (AMD) has been rallying higher this month. This hasn’t been a blink-and-you’ll-miss it kind of climb, we’re talking 17% since November 1. The semiconductor stock’s year-to-date performance also hasn’t failed to impress investors, with shares gaining a whopping 122%.
However, all this bullish sentiment has left some questioning whether this growth story is worthy of the lofty admission price. Has all the upside already been baked into the elevated share price?
One top analyst believes that this is in fact the case. Northland Securities’ Gus Richard steps to the sidelines, noting, “While we would not short AMD, we would not be buyers at currently levels either.”
Richard downgraded AMD from Outperform to Market Perform while keeping his price target at $36, which implies potential downside of 12%. (To watch Richard’s track record, click here)
Revenue Momentum Remains
Richard isn’t denying that AMD’s market share has grown. In its third quarter alone, the five-star analyst estimates that server and PC revenue reached $1.14 billion, representing a gain of 59% quarter-over-quarter and 81% year-over-year. This is noteworthy when you consider Intel’s equivalent increase of 16% quarter-over-quarter and 2% slip year-over-year.
That being said, the analyst expects these gains to decelerate. “Due to INTC's incumbency share gains will come more slowly in all of these markets the more AMD's market share expands. In addition, AMD's increase in revenue makes incremental market share gains a smaller percentage of revenue,” he explained.
Estimates Are Over-the-Top
While revenue is likely to increase, Richard thinks that the Street’s forecasts are way over-the-top. “Our estimates are now $0.04 below consensus. Currently street high revenue is $9.9B for CY20 up 48% Y/Y. Some estimates at the high-end of consensus are irrational exuberance, in our view,” he commented.
To this end, he reminds his clients that while there isn’t much in it for a sell-side analyst when it comes to downgrades, he has to be “intellectually honest.”
Other Analysts Weigh In
Mizuho Securities analyst Vijay Rakesh agrees that the intense competition from Intel presents an intense obstacle for AMD to overcome. “We believe Intel’s Cascade Lake can offer better performance than Skylake at comparable SKUs, and we believe with Cascade Lake pricing now at parity with prior Skylake SKUs in some instances, this poses a challenge to AMD,” he stated. With this in mind, the five-star analyst reiterated his Hold rating and $38 price target, suggesting shares could slump 7% lower in the next twelve months. (To watch Rakesh’s track record, click here)
Meanwhile, Rosenblatt Securities analyst Hans Mosesmann takes a much more optimistic approach. “AMD’s 3-year roadmap (Intel’s are in total flux), strategic partnerships, and new product roll-outs point to socket wins that are “sticky,” sustainable and long-term focused,” he commented. This prompted the five-star analyst to maintain his bullish thesis and $52 price target, putting the potential twelve-month gain at 31%. (To watch Mosesmann’s track record, click here)
The Bottom Line
Looking at the consensus breakdown, it’s a mixed bag when it comes to AMD. 11 Buys, 11 Holds and 1 Sell ratings received in the last three months give the chip stock a ‘Moderate Buy’ analyst consensus. In addition, its $36.68 average price target brings the downside potential to 8%. (See AMD stock analysis on TipRanks)