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The Ratings Game: AMD results may have given Wall Street sigh of relief, but they’re still a ‘mixed bag’ because of data-center weakness

Advanced Micro Devices Inc. may have unleashed a collective sigh of relief on Wall Street with its results, but the data-center weakness that helped trash Intel Corp.’s earnings last week is still showing up as a dip in the first half of AMD’s 2023.

Late Tuesday, AMD

reported modest results compared with Wall Street expectations, and while those expectations had been managed a quarter ago with an inventory clearance of PC stock, the company must also account for inventory in its data-center business.

PC inventory clearance promises to wrench about 400 basis points of gross margin from Intel
as the industry deals with the worst shipment declines in recorded history. But it appears as if AMD is not out of the woods yet, as now the inventory focus turns to data-center products that are expected to see light demand in the first half of 2023 from “some of the cloud customers,” according to AMD Chief Executive Lisa Su on the post-report call with analysts.

Read: AMD CEO promises to keep taking data-center from Intel even as cloud demand pauses following ‘strong’ 2022

Mizuho analyst Vijay Rakesh, who has buy rating and a $90 price target, said AMD’s data-center outlook is similar to the one he expects for the segment as Oracle Corp.

and Microsoft Corp.

drive cloud demand in the second half of 2023.

While Intel closed out its worst year since the dot-com bust, AMD’s Su characterized 2022 as a “strong” year for the company. Su said AMD’s remaining inventory mostly lies in its data-center business, so the second half of 2023 there should be stronger than the first half.

Not only did AMD, Intel and Nvidia Corp.

all pour new models of gaming cards into a holiday channel where PC shipments were dropping at their steepest recorded rates and a wave of secondhand gaming cards flooded the markets as unprofitable cryptocurrency-mining operations folded, inventory proved to be an issue in other segments.

Cowen analyst Matthew Ramsay, who has an outperform rating, and a $100 price target, called the report a “mixed bag…but in stark contrast to Intel last week.”

While the data-center outlook for the first quarter was below consensus and lower than expected gross margins expected, AMD’s confidence in the second-half recovery and share gains rank as positives, Ramsay said.

“A weak current macro, no doubt; but 2023 share gains should pay larger dividends as the macro improves in 2H23 into 2024,” Ramsay said.

Bernstein analyst Stacy Rasgon, who recently downgraded AMD to market-perform and has an $80 price target, called the results “decent,” and said weakness remains because of inventory both in data-center and client.

“While on an absolute basis results were not great, relative to their larger competitor’s report last week the print came across much better, and while the company is being impacted by macro and inventory issues across their business Intel appears to be affected in a much worse way,” Rasgon said.

Summit Insights analyst Kinngai Chan, who has a hold rating on AMD, said the company’s first-quarter outlook of weaker cloud demand was consistent with his view, and that he expects “AMD share gains in the data center market will be less meaningful in 2023 compared to 2022.”

Of the 43 analysts who cover AMD, 33 have buy ratings, and 10 have hold ratings, along with a price target of $88.48.

AMD shares were crushed with a 55% price decline in 2022, while the PHLX Semiconductor Index

dropped 35.8%, the S&P 500 index 

finished the year down 19.4%, and the tech-heavy Nasdaq Composite Index 

shed 33.1%. Over January, however, markets have rallied, and AMD shares have surged 15%, while the SOX index gained 15%, the S&P 500 gained 6%, and the Nasdaq rose 10%.

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