After Intel’s embarrassing disclosure and the company’s fresh line of personal computer chips, Advanced Micro Devices stock is heading into its second-quarter earnings at nearly a record five-year high.
Days after AMD (ticker: AMD) released details about its new line of PC chips built with a so-called seven-nanometer fabrication process, Intel (INTC) said its own attempt to make transistors of that size would be delayed a further six months. Investors largely see Intel’s manufacturing weakness as an opportunity for AMD to gain market share from its considerably larger rival.
Investors have rewarded AMD, bidding it up roughly 20% over the last five trading sessions. Now, it is the most expensive name in the PHLX Semiconductor Index, trading at 61 times forward earnings compared with Intel stock which is valued at 11.6 times forward earnings.
Sell-side analysts are expecting AMD to report adjusted earnings of 16 cents a share on sales of $1.86 billion, of which $1.36 billion is expected from its computing and graphics division and the remaining $485 million from its enterprise embedded and semi-custom segment. The company has previously issued quarterly sales guidance of $1.75 billion to $1.95 billion. In the year-ago quarter, AMD reported adjusted earnings of 8 cents a share and sales of $1.53 billion.
Of the 36 analysts who cover AMD, 14 have the equivalent of a Buy rating, 19 have a Hold, and three rate it a Sell. The average target price is $55.48, implying there is a downside of 20% from Monday’s closing price.
Intel’s manufacturing issues are seen by BMO Capital Markets analyst Ambrish Srivastava as a significant advantage for the Santa Clara, Calif.-based company. “After yet another Intel manufacturing slip, the CPU battle now seems to be AMD’s to lose,” Srivastava wrote in a note to clients. Srivastava has the equivalent of a Hold rating on AMD with a $50 target price.
Citi Research analyst Christopher Danely wrote in a client note that AMD’s advantage will be short lived and the company will soon find itself in a price war with Intel. Danely does, however, expect the company to report a positive quarter because of Covid-19 pandemic related lockdowns, as other semiconductor companies have as well. But Danely is not expecting the second half of the year to go as well for the company. According to his analysts, the boost from consumers upgrading their home equipment because they are working or learning from home is nearing its end. Danely has a sell rating on AMD stock with an $8 target price.
Last week, RBC analysts Mitch Steves was bullish enough about the stock to raise his target price to $71 from $66. Steves wrote in the note that the number of Hold recommendations for the stock has likely created a large number of low estimates for fiscal 2021 estimates and has dragged down the averages considerably. His team likes AMD because of its server revenues, the demand for graphics processing units (GPUs) from gamers because of the coronavirus-related lockdowns and positive results from Texas Instruments which suggested personal electronics were benefiting from the same lift as GPUs.
AMD shares have appreciated sharply this year, rising 50% to $68.97 as the S&P 500 Index has retreated 0.3%. The PHLX index has advanced 10.2% in 2020.
AMD is set to report earnings Tuesday after the closing bell.
Write to Max A. Cherney at max.cherney@barrons.com
July 28, 2020 at 05:45AM
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AMD Reports Earnings Tuesday. Here’s What To Expect. - Barron's
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