Advanced Micro Devices, Inc. (NASDAQ:AMD) stock has taken a huge hit this month along with much of the rest of the tech sector. The selloff effectively erased 2017 from history because the AMD stock price stands right about where it stood a year ago. For investors who rode the chip maker’s stock to the peak and back, all those gains have evaporated.
The AMD stock price rallied today again though after one analyst team upgraded the shares—thanks in part to the decline observed all month long.
AMD stock upgraded by Macquarie
In a note on Monday Macquarie analysts Srini Pajjuri and Corey Grady upgraded AMD stock to Neutral and raised their price target from $10 to $11 per share. The AMD stock price jumped by more than 6% in intraday trading on Monday, climbing nearly to their new price target for an upgrade only to Neutral. At the time they wrote their note, the AMD stock price was down by about 10% year to date, and it was underperforming the SOX semiconductor index by over 45 points.
They noted that AMD’s execution has gotten better this year, but they didn’t believe that the revenue or margins were high enough to justify investors’ expectations through much of this year. After the AMD stock price came down, however, the Macquarie team began to see expectations as “more reasonable.”
PC share gains
They continue to expect the chip maker to take share in the PC and GPU markets, although they noted that the early hype around AMD’s new Ryzen CPU line-up seems to have deflated for the most part. The chip maker still has some new products in the pipeline, although the Macquarie team questions how much of a share the company will be able to take in the notebook and corporate segments. On the other hand, they expect average selling prices to improve as the Ryzen products become a greater and greater mix of the products.
They also expect AMD to benefit from the partnership with Intel for GPUs, and they noted that the company has won server business from Microsoft, Baidu and HP, suggesting that its EPYC servers are at least competitive in certain segments. They see a 5% to 10% share of units as being reasonable over the next one to two years.
Polaris also drove share gains in recent quarters, and they believe the Vega ramp is also contributing to improvements in average selling prices. Other tailwinds in the PC market include the iMac Pro win from Apple.
Cryptocurrency headwinds
The Macquarie team expects AMD’s PC / GPU revenue to grow in the high-single digits next year, despite the headwinds they expect in the cryptocurrency market. They didn’t expound on their concerns around cryptocurrency, but there’s little need to do so. One of the reasons AMD stock has climbed so much this year was because of its exposure to digital currencies, despite the reservations expressed by multiple analysts. For most, the concern is that cryptocurrency-related GPU demand isn’t seen as sustainable because the market is blowing up like a massive bubble.
Bitcoin prices continue to soar, and investors aren’t missing any opportunity for exposure to it, even snapping up newcomers like fintech startup Longfin, whose stock is up 2,500% since last week.
They note that the AMD stock price isn’t cheap on a P/E basis at 24 times calendar 2019 P/E estimates, but they believe it can trade about where it has been because of the improvements in product mix, servers and expectations for share gains. They also note that the AMD stock price is still a more-than 30% discount to Intel stock.
