Wall Street is focused on the potential for a bounce back within Advanced Micro Devices ‘ struggling personal computer and data center businesses. But analysts aren’t fully aligned on what to do with the stock. The semiconductor company reported 60 cents in adjusted earnings per share on $5.35 billion in revenue for the quarter. Both were ahead of expectations, as analysts polled by Refinitiv anticipated 56 cents of adjusted earnings per share and a $5.3 billion revenue figure. AMD said to expect about $5.3 billion in sales for the current quarter, while analysts expected $5.48 billion. But CEO Lisa Su said the company should be able to grow in the second half of the year, specifically noting help from improvements in the PC and server markets. The stock fell more than 7.5% in the premarket on the back of the report. AMD 1D mountain AMD shares Bank of America analyst Vivek Arya downgraded shares to neutral from buy. In addition to citing a more balanced risk-reward ratio, Arya noted headwinds such as a lack of exposure to China, aggressive pricing and promotions from competition and limited growth opportunities in some businesses. Arya’s price target of $95 reflects the potential for an upside of 5.7% over Tuesday’s close. “We continue to like AMD’s consistent execution and its breadth of product cycles in attractive compute/AI markets,” Arya wrote. “However, in the near/medium-term we see a range of headwinds including: 1) Aggressive pricing/promotion pressure from main rival Intel; 2) Riskier ~50% [half-on-half data] center growth outlook in 2H against a restrained cloud capex environment … 3) Improving, but still only modest position in AI accelerators … against NVDA; and 4) Limited headroom for PE multiple expansion.” Meanwhile, Citi’s Christopher Danely said data center growth estimates for the second half seem aggressive. “We believe there could be more downside to AMD’s data center business as AMD’s data center revenue has only corrected 22% from its peak in 3Q22 while Intel’s data center business has corrected 42%.” Danely has a neutral rating on AMD. To be sure, he hiked his price target on the stock to $85 per share from $76. The new target is still 5% below Tuesday’s close. ‘Better from here?’ Others were more constructive on AMD, arguing that investors should be able to look beyond short-term headwinds. “Cutting #s but the setup for the business investors are focused on – Data center and PC – seems better form here,” said Morgan Stanley analyst Joseph Moore. He kept his overweight rating on the stock but shaved $5 off his price target to $97, now implying the stock could gain 7.9% from where it ended Tuesday. He said weaker-than-expected server and PC trends should reverse by the second half of the year. Moore said the data center business was down 22% quarter over quarter, while PCs dropped 18% quarter over quarter and 65% year over year. But he said the embedded business could act as an offset, helped by the performance of semiconductor-focused subsidiary Xilinx. Jefferies analyst Mark Lipacis, who also forecasted a “snapback” in the second half of the year, noted management commentary showing the belief that demand for the PC business bottomed in the first quarter of 2023. He also pointed to the fact that AMD said it was shipping 20% below consumption, though ship-in should align with ship-through starting around the middle of the year. Lipacis said to expect AMD’s PC margins and market share to improve with inventory normalization. Based on the improving ship-in model, he said the PC business should hit $1.5 billion by the end of the fourth quarter of 2023, which would account for about 70% of its peak seen in the first quarter of 2022. In addition to keeping his buy rating on the stock, Lipacis upped his price target by $10 to $100. His new price target implies an upside of 11% from Tuesday’s close. Goldman Sachs analyst Toshiya Hari, on the other hand, kept his buy rating on the stock. Hari’s $97 price target implies an upside of 7.9% from Tuesday’s close. “We believe this was a mixed print from AMD,” he said, “with concerns related to the overall data center capex environment and client CPU pricing largely offsetting expectations for a strong 2H23 recovery driven by data center product cycles that are specific to AMD and a normalization in client CPU sell-in.” — CNBC’s Michael Bloom contributed to this report.
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