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The Ratings Game

April 28, 2021, 12:30 p.m. EDT

AMD’s market-share grab from Intel is just the beginning, analysts say, but watch out for a price war

By Wallace Witkowski

Advanced Micro Devices Inc. received accolades from most analysts who cover the stock Wednesday, as the chip maker turned in another beat-and-raise quarter and threw into question the notion that data-center demand for chips is relatively weak.

Late Tuesday, AMD (NAS:AMD) upended Intel Corp.’s (NAS:INTC) narrative of a data-center “digestion phase” accounting for lower sales by reporting that its data-center chip sales more than doubled . AMD’s results and improved outlook also topped Wall Street estimates.

Of the 37 analysts who cover AMD, 22 have buy ratings on the stock, 12 have hold ratings, and three have sell ratings, according to FactSet. Of those, six analysts hiked their price targets, raising the average price target on the stock to $106.10 from a previous $100.50, according to FactSet data.

Susquehanna Financial analyst Christopher Rolland, who has a positive rating and a $125 price target, published a note entitled, “Blowout ’21 Guidance Tells a Tale of Two CPU Companies.”

“AMD posted incredibly strong results/guidance, driven by broad-based growth across almost all product lines. But the star of the show was the positively revised 2021 top-line growth guidance from +37% to 50% YOY,” he wrote.

With AMD reporting revenue of $9.67 billion last year, that hike suggests sales of about $14.65 billion this year, well above the $13.46 billion average analyst estimate at the time, according to FactSet. That analyst average was pushed up to $14.35 billion by Wednesday.

AMD’s strong earnings and outlook come amid a continuing global shortage of microchips as the companies that make the silicon wafers that chip designers use work to clear waiting lists that span several months.

Read: The semiconductor shortage is here to stay, but it will affect chip companies differently

Cowen analyst Matthew Ramsay, who has an outperform rating and a $120 price target, said the report and outlook showed there are no signs of AMD’s momentum slowing.

“AMD is continuing to gain material share in large and growing markets with the strength of its PC and server CPU road maps and customer partnerships,” Ramsay said.

Jefferies analyst Mark Lipacis, who has a buy rating and a $110 price target, said he expects AMD’s bleeding of market share from Intel to only accelerate. The analyst estimates that AMD has a 9.1% market share of servers, up from 7.4% only a quarter ago.

“We estimate AMD server CPU revs increased by 17% QQ compared to INTC server CPUs declining 9% QQ, translating to an approximate 170bps share gain by AMD,” Lipacis said. “We continue to expect AMD’s share gains to accelerate from 50-100bps/qtr to 100-300 bps per quarter through 2021 and 2022 while AMD maintains its 1-yr process node lead.”

Read: Intel’s data-center customers may be ‘digesting,’ but AMD’s buffet is wide open

Not everyone is convinced by AMD’s strides over the past few years, however. Citi Research analyst Christopher Danley, who has one of the few sell ratings on AMD and an exceptionally low price target of $17 on the stock, doesn’t expect AMD’s bleeding of market share from Intel to last much longer given Intel CEO Pat Gelsinger’s comments that his company will aggressively defend its market share.

“Still expect a price war when PCs cool,” Danley warned. “While AMD gained share and we expect the company to continue to gain share at least over the next couple of years, we also expect Intel to initiate a price war in 2H21 to try to maintain market share.”

Over the past 12 months, AMD shares have gained 53%. In comparison, the PHLX Semiconductor Index (NASDAQ:SOX) has gained 86%, the S&P 500 index (S&P:SPX) has risen 46%, and the tech-heavy Nasdaq Composite Index (NASDAQ:COMP) is up 63%.

More of how the chip sector is dealing with supply shortages will be revealed this week, with Qualcomm Inc. (NAS:QCOM) earnings on Wednesday after the bell and KLA Corp. (NAS:KLAC) earnings on Thursday.

Link to MarketWatch's Slice.