July 31, 2019 8:06 a.m. ET
A Susquehanna analyst wonders if AMD is setting itself up for another downward revision to its forecast
Analysts are fretting about Advanced Micro Devices Inc.’s ability to live up to high expectations after the company delivered a disappointing forecast for the third quarter and lowered its full-year outlook.
AMD shares AMD, +1.16% have been riding a wave of enthusiasm for the company’s new offerings, which are expected to ramp up in the second half of the year. But as the chipmaker continues to see revenue declines with its semi-custom gaming-console chips, some analysts are questioning whether the lowered outlook represents still too high a bar.
The full-year target “implies a very difficult fourth quarter, which is now at risk,” wrote Susquehanna’s Christopher Rolland, who has a neutral rating and $32 target on the stock.
“Additionally, management highlighted significant console headwinds in 2H19, putting the growth burden entirely on the shoulders of CPU, GPU, and server (in that order of impact),” Rolland continued. “So it raises THE big question… does AMD actually have visibility into massive 4Q sequential growth, or are they setting themselves up for another downward revision?”
Shares are down 4.5% in premarket trading.
Baird’s Tristan Gerra chimed in with similar concerns. “High stock valuation combined with our view inferred 4Q revenue guidance may be difficult to reach keeps our model below the full-year revenue guidance, with ongoing macro risks, a more aggressive ramp from Intel as it recovers from shortage issues, along with lingering GPU inventory issues,” Gerra wrote, though he is “incrementally positive” on AMD’s potential to realize its desired market-share gains with its Epyc server chips.
He has a neutral rating and $30 target on the shares.
Others remained upbeat about what the rest of the year could hold for AMD, including Wells Fargo’s Aaron Rakers. “While AMD’s slightly tempered 2019 outlook will likely put some pressure on shares...we think our positive thesis on AMD as a 2H2019 7-nanometer third-generation Ryzen, Radeon RX 5700, and second-generation Epyc Rome server CPU product-cycle momentum/upside story is unchanged,” he wrote.
Rakers has a outperform rating and $40 target price on the stock.
Opinion: Even Intel doesn’t seem to know what’s going to happen with Intel
Jefferies analyst Mark Lipacis assumes that AMD’s full-year outlook is actually cautious given a recent track record of strong execution amid stumbles from rival Intel Corp. INTC, -0.27% “This guidance translates into a 22% [quarter-over-quarter] growth for 4Q19 with gross margins at 43% and we think the outlook is conservative,” wrote Lipacis, who rates the stock a buy and hiked his target to $40 from $34.AMD shares are up 83% so far this year, as the S&P 500 SPX, -0.26% has risen 20% and the PHLX Semiconductor Index SOX, -0.26% has increased 38%.