The Ratings Game: AMD sets ambitious growth targets, but stock may already be pricing that in

Don’t miss: AMD shows that it’s not resting on its laurels with ambitious road map

At least seven financial analysts raised their price targets on AMD stock after hearing the presentation, according to FactSet, while at least two decreased their targets. AMD shares were last down 1.3% at $47.49, trading between a range of $46.81 and $49.54 on the day. In comparison, the S&P 500 index SPX, -3.92% was down 2.3%, the tech-heavy Nasdaq Composite Index COMP, -4.03% declined 2.6%, and the PHLX Semiconductor Index SOX, -4.12% was down 2.6%.

Atlantic Equities analyst Ianjit Bhatti upgraded AMD to overweight and raised his price target to $60 from $37, noting that “our analysis indicates that AMD’s chiplet technology provides it with a significant cost advantage in manufacturing, limiting any impact.

“Furthermore, we believe that given management’s track record, AMD can execute on its CPU road map, sustaining its performance lead against Intel,” Bhatti said. For their part, Intel Corp. INTC, -3.88% shares were down more than 3% Friday.

Bernstein analyst Stacy Rasgon, who maintained a market perform rating and a $40 price target, was a little less optimistic. Of AMD’s implied earnings guidance in the area of $2.50 a share by 2023, Rasgon said “we suspect most bulls in the stock were already there, and probably a year or so earlier (hence we are unconvinced that it necessarily provides a strong catalyst for significant upside with the shares in the ballpark of $50).”

“Additionally, it relies on significant growth across every aspect of the business over a multiyear period, requiring sustained if not accelerated performance going forward all while even AMD seems to expect the competition to potentially narrow the gap over time (suggesting gains need to accelerate while their window possibly tightens),” Rasgon wrote.

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Wells Fargo analyst Aaron Rakers, who has an equal weight rating on the stock, lowered his price target to $55 from $64 to reflect the recent market weakness and voiced a frustration common to those who would like to know exactly how much data-center sales contribute to the top line, which would make it easier when making comparisons to Nvidia Corp. NVDA, -5.34% or Intel.

“We are a bit disappointed AMD did not provide a new rev. segmentation that would provide greater visibility into the company’s datacenter (CPU + GPU) growth trends,” Rakers said, noting that AMD’s guidance sees data-center sales at about 30% of revenue by 2023 up from about 15% in 2019, implying 40% CAGR growth.

AMD continues to lump in its data-center sales with console-chip sales in the same segment known as “enterprise embedded and semi-custom segment,” so when console sales dropped dramatically in the last quarter ahead of new consoles, the segment as a whole underperformed and made it difficult to see the true performance of data-center sales.

Read:The problem with AMD’s data-center business

Morgan Stanley analyst Joseph Moore, who has an equal-weight rating and a $42 price target, also said that “good news seems priced in for now,” and that the company “avoided updating server targets with specificity.”

“The debate continues to be mostly around valuation, with the stock already trading at over 20x the company’s 2023 EPS targets — and while there could certainly be upside to that target, we’re inclined to see upside/downside as fairly balanced that far out, given the challenges of predicting share in any of these segments beyond 12 months, and the large resources and incumbency advantages from competitors Intel and Nvidia,” Moore said.

Back on Tuesday, Piper Sandler analyst Harsh Kumar upgraded AMD to overweight ahead of the presentation based on the stock’s pullback because of coronavirus fears.

Over the past 12 months, AMD shares have rallied 110%, while the S&P 500 has gained 5.9%, the Nasdaq has grown 13% and the SOX chip index has increased 26%. On the SOX chip index, only three stocks remain positive for the year to date: AMD with a 3.3%, Entegris Inc. ENTG, -4.87% with a 3.4% gain, and Nvidia with a 11% gain.

Of the 38 analysts who cover AMD, 15 have buy or overweight ratings, 20 have hold ratings and three have sell or underweight ratings. After factoring in many of the changes Friday morning, FactSet reported an average price target of $49.84, up from $48.50.

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