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March 6, 2020, 4:35 p.m. EST

AMD sets ambitious growth targets, but stock may already be pricing that in

AMD’s Lisa Su sees 20% annual growth and analysts hike price targets while wondering if huge share-price growth in recent years has already captured the potential

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By Wallace Witkowski, MarketWatch


AMD
AMD's Radeon Pro V340 datacenter graphics card.

Advanced Micro Devices Inc. believes the revenue growth that has sent its stock soaring in recent years will accelerate in the coming years, but the stock’s growth may have already priced in that advance, analysts wrote Friday morning.

At an analyst day presentation late Thursday, AMD /zigman2/quotes/208144392/composite AMD -1.51%  Chief Executive Lisa Su forecast a long-term compound annual growth rate of 20%, an impressive forecast given the company’s CAGR has been in the midteens over the past five years and the stock has been the S&P 500’s biggest gainer in both 2018 and 2019. Su also said the company’s supply chain was also back to “near normal capacity” amid disruptions from the COVID-19 coronavirus.

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 closed up 1% at $48.59, having traded between a range of $46.74 and $49.54 on the day. In comparison, the S&P 500 index /zigman2/quotes/210599714/realtime SPX +1.36% finished down 1.7%, the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +0.78%  declined 1.9%, and the PHLX Semiconductor Index /zigman2/quotes/210598361/realtime SOX +2.87% closed down 2%.

/zigman2/quotes/208144392/composite AMD 52.73, -0.81, -1.51%

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. /zigman2/quotes/203649727/composite INTC -0.31%  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.

See also: Here’s what Apple suppliers have been saying about the coronavirus

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. /zigman2/quotes/200467500/composite NVDA -0.63%  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

Jefferies analyst Mark Lipacis, who has a buy rating and raised his price target to $60 from $58, said he feels AMD is being conservative about when it comes to data-center sales seeing the company’s second-generation Epyc chips were just launched in August.

“We show that data center processors revenues from Intel, Nvidia, Xilinx /zigman2/quotes/209389378/composite XLNX +2.46%  and AMD, have grown at a long term rate of 15% over the last 14 years,” Lipacis said.

“Applying the 15% CAGR, we expect 2023 data center [total addressable market] to be $47bn vs. AMD’s expectation of $35bn,” Lipacis said. “AMD’s 2023 data center outlook implies data center revenues of $4.2bn and translates into a 9% share, which we think is conservative. We expect server share gains to accelerate as cloud & enterprise customers become more familiar with EPYC.”

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 117%, while the S&P 500 has gained 7%, the Nasdaq has grown 14% and the SOX chip index has increased 27%. On the SOX chip index, only four stocks remain positive for the year to date: AMD with a 6% gain, Entegris Inc. /zigman2/quotes/200628784/composite ENTG +2.92%  with a 5% gain, Lam Research Corp. /zigman2/quotes/208077897/composite LRCX +5.68%  with a 0.7% gain, and Nvidia with a 13% 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.

/zigman2/quotes/208144392/composite
US : U.S.: Nasdaq
$ 52.73
-0.81 -1.51%
Volume: 46.77M
June 3, 2020 4:00p
P/E Ratio
127.24
Dividend Yield
N/A
Market Cap
$62.71 billion
Rev. per Employee
$641,089
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/zigman2/quotes/210599714/realtime
US : S&P US
3,122.87
+42.05 +1.36%
Volume: 3.16B
June 3, 2020 5:18p
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/zigman2/quotes/210598365/realtime
US : U.S.: Nasdaq
9,682.91
+74.54 +0.78%
Volume: 4.23M
June 3, 2020 5:16p
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/zigman2/quotes/210598361/realtime
US : Nasdaq
1,937.47
+54.05 +2.87%
Volume: 227,389
June 3, 2020 5:16p
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/zigman2/quotes/203649727/composite
US : U.S.: Nasdaq
$ 61.93
-0.19 -0.31%
Volume: 16.74M
June 3, 2020 4:00p
P/E Ratio
11.99
Dividend Yield
2.13%
Market Cap
$263.02 billion
Rev. per Employee
$659,665
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/zigman2/quotes/200467500/composite
US : U.S.: Nasdaq
$ 350.78
-2.23 -0.63%
Volume: 9.14M
June 3, 2020 4:00p
P/E Ratio
65.51
Dividend Yield
0.18%
Market Cap
$217.15 billion
Rev. per Employee
$882,428
loading...
/zigman2/quotes/209389378/composite
US : U.S.: Nasdaq
$ 95.39
+2.29 +2.46%
Volume: 2.87M
June 3, 2020 4:00p
P/E Ratio
30.60
Dividend Yield
1.59%
Market Cap
$22.64 billion
Rev. per Employee
$723,353
loading...
/zigman2/quotes/200628784/composite
US : U.S.: Nasdaq
$ 61.97
+1.76 +2.92%
Volume: 1.42M
June 3, 2020 4:00p
P/E Ratio
29.87
Dividend Yield
0.52%
Market Cap
$8.10 billion
Rev. per Employee
$316,428
loading...
/zigman2/quotes/208077897/composite
US : U.S.: Nasdaq
$ 286.89
+15.43 +5.68%
Volume: 2.43M
June 3, 2020 4:00p
P/E Ratio
20.63
Dividend Yield
1.60%
Market Cap
$39.41 billion
Rev. per Employee
$996,856
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Wallace Witkowski is a MarketWatch news editor in San Francisco. Follow him on Twitter @wmwitkowski.

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