AMD Q4 2017 earnings beat not so attractive
In a post-earnings note, Barclays analyst Blayne Curtis argued that after factoring in all the “moving parts, AMD’s earnings beat becomes “far less attractive.” He explained that the accounting change provided a $100 million boost to AMD’s Semi-Custom segment alone.
He also disagrees with management’s assessment of AMD’s earnings beat, noting that they mentioned” incremental growth” across product lines, including GPUs, and the Ryzen and EPYC product lines. Instead, he believes that most of the earnings beat came from GPUs, and most analysts agree that much of the incremental growth is coming from cryptocurrency-related demand. In fact, he doesn’t think AMD management is being entirely clear on where AMD’s earnings beat in Q4 came from.
Was AMD management being totally clear?
Although they estimated that about one-third of the incremental growth in the Computing and Graphics segment was probably from cryptocurrency-related demand, Curtis believes that it was probably more than that. He also noted that it’s difficult to track this because the same cards are used for both gaming and cryptocurrency mining.
Overall, he called the Q4 2017 results “decent,” but he still believes that the main drivers of AMD’s earnings beat face challenges into this year. He has “seen little evidence of share gains outside of crypto,” as he said that desktop CPUs are “barely up” year over year. Further, he believes the chip maker’s EPYC product line is “unsuccessful despite a goal of mid-single-digit-unit share” by the end of this year.
He feels that the new accounting standards also gave AMD’s Q1 2018 guidance a boost, as the chip maker guided for sales to be $1.55 billion, plus or minus $50 million, which is beat the consensus of $1.25 billion handling. He maintains his Underweight rating and $10 price target on AMD stock following the company’s earnings beat.
AMD stock could be kept range-bound
Credit Suisse analyst John Pitzer maintained his Neutral rating but raised his target price on AMD stock from $12 to $13.50 per share following the earnings beat. Unlike Curtis and much of the rest of the sell side, he sees crypto-related demand as being “more sustainable with most. In fact, between crypto demand and the value of the chip maker’s core intellectual property, he feels the valuation of AMD stock could remain range-bound between $13 and $15 per share.
Like Curtis, Macquarie analyst Srini Pajjuri questions the sustainability of crypto demand, but like Pitzer, he raised his price target for AMD stock, moving it up to $13 from $11 per share. The big thing he wants the company to work on is its margins, and he feels that the numbers suggest any share gains AMD has managed are coming from the low end of the PC and server markets. He sees servers as a key part of getting AMD stock “to work,” although he did find the company’s progress in PCs to be “encouraging.”
AMD stock continued to slide on Friday, falling by about 4% to as low as $9.70 before bouncing.