With the seemingly endless selection of headwinds plaguing 2022, this year is panning out like no other in recent times. Just ask investors in Advanced Micro Devices (AMD). After making a habit of consistently outperforming the market, AMD shares have been on the backfoot in 2022 (down 43%) – a highly irregular occurrence.
Yet, according to Morgan Stanley’s Joseph Moore, despite the macro uncertainty, it is now time investors cotton on to the opportunity following the stock’s decline.
“While the demand picture across all of the end markets is mixed given the plateauing economy, we think that the stock has over-corrected - we see share gains and mix improvement allowing them to power through more than most with double digit growth next year, and with the stock down over 48% from its 4Q21 highs, we see the risks as largely priced in," Moore said.
That’s not to say there aren’t any valid concerns regarding the economy’s downturn and the implications on AMD’s business – particularly on the consumer side, which Moore thinks is likely the main culprit behind the share price weakness.
And with PC processors, graphics, and consoles accounting for 55% of revenues, the analyst is expecting a “meaningful correction” in PC over the next few quarters. That said, even with the concerns around the consumer-linked end-markets, Moore believes AMD is not as exposed compared to other major competitors.
And providing a counterpoint, with data center plus Xilinx products now representing around 50% of gross profit dollars, and both boasting “strong share gain potential,” over the next 2-3 years, Moore thinks that figure could move up to around 65%-70%. As such, even though the analyst is cautious on the general state of semiconductors, AMD’s “strength in server” should enable it to keep showing “solid growth at a now-reasonable valuation.”
To this end, Moore resumed coverage of AMD stock with an Overweight (i.e., Buy) rating and a $103 price target. Should that figure be reached, investors are looking at 12-month gains of 25%. (To watch Moore’s track record, click here)
Amongst Moore’s colleagues, AMD’s ratings are mixed, although the bulls remain in charge; based on 15 Buys vs. 10 Holds, the stock claims a Moderate Buy consensus rating. The average price target is more bullish than Moore will allow; at $136.71, the figure represents one-year upside of ~66%. (See AMD stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
Shares of the semiconductor giant Advanced Micro Devices (NASDAQ: AMD) have lost substantial value this year. For instance, AMD stock has dropped over 43% year-to-date on fears of a slowdown in the end market amid economic reopening, supply constraints, and lockdown in China.
Now What?While AMD stock has declined quite a lot, the fear of a slowdown in demand hasn’t played out yet. AMD continues to deliver robust revenue growth on the back of solid demand trends. During the last reported quarter, each of AMD’s businesses registered double-digit growth.
Moreover, at its analyst day, the company reiterated its full-year guidance, citing ongoing strength in its business. Furthermore, management is upbeat and expects its top line to grow at a CAGR of 20% in the medium term. The expansion of TAM (total addressable market), new product launches, and the Xilinx acquisition bode well for growth.
Highlighting AMD’s analyst day guidance, Susquehanna analyst Christopher Rolland stated, “Specifically, we note the ~20% top-line CAGR, >57% GM [gross margin], and mid-30% OM [operating margin] guides, which were all generally in-line with our prior expectations for the day. If properly executed, we note the new model could drive nearly ~$7 of EPS in 2025, with more than half of revenue expected to come from data center and embedded end markets.”
Rolland is bullish on AMD stock. Moreover, his price target of $140 represents 71.6% upside.
Contrary to Rolland, Robert W. Baird analyst Tristan Gerra expects a deceleration in AMD’s growth. Gerra stated, “At its analyst day, AMD reiterated its full-year guidance, citing strength in data center, Xilinx, and PC mix. However, given concerns around an abrupt slowdown in PC demand, weakening consumer GPU trends, and much tougher comps for 2023, investors are likely to stay on the sidelines.”
Gerra, who remains sidelined on AMD stock, added that competition from Intel (NASDAQ: INTC) could pose challenges for AMD in the medium term.
Bottom LineThe ongoing strength in demand, new product launches, and the expansion of TAM bode well for AMD’s future growth. Further, management’s upbeat guidance is positive.
However, Wall Street is cautiously optimistic about AMD stock on concerns about a slowdown in growth and competition. AMD stock has received 14 Buy and 10 Hold recommendations for a Moderate Buy consensus rating. Meanwhile, the average AMD price target of $138.40 implies 69.7% upside potential to current levels.
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