The Ratings Game: AMD stock sees worst day in six months as ‘conservative’ outlook gives pause

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Advanced Micro Devices Inc. shares fell Wednesday as soft console chip sales overshadowed data-center sales and while more than half the analysts covering the highflying stock hiked price targets.

AMD AMD, -7.21%  shares dropped 8% to $46.52 at last check, following an intraday low of $46.10, set for their worst day since July 31, when the stock closed down 10% after the company lowered its 2019 outlook.

In comparison, the S&P 500 index SPX, +0.31% rose 0.3% Wednesday, while the tech-heavy Nasdaq Composite Index COMP, +0.33%  advanced 0.3% and the PHLX Semiconductor Index SOX, -1.42% fell 1.6%.

Of the 38 analysts who cover AMD, 14 have buy or overweight ratings, 21 have hold ratings and three have sell or underweight ratings. Of those 21 hiked their price targets, while one lowered theirs, resulting in a price target of $46.59, up from the previous day’s $43.30.

In the short term, one big headwind was AMD’s first-quarter revenue guidance of $1.75 billion to $1.85 billion while analysts surveyed by FactSet had forecast $1.86 billion. AMD blamed soft console sales ahead of Sony Corp. SNE, -0.35%  and Microsoft Corp. MSFT, +1.45% rolling out new consoles later in the year. For the year, AMD’s forecast of a 28% to 30% rise in revenue, versus the Street’s forecast of 28%, hinged on an improvement in the second half of the year.

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

Susquehanna Financial analyst Christopher Rolland, who has a neutral rating and a $50 price target, called the forecast “a modest disappointment as buy-side expectations were likely elevated” and pointed to the stock’s incredible run.

AMD stock was the biggest gainer on the S&P 500 in both 2018 and 2019. Over the past 12 months, AMD shares have rallied 144%, while the S&P 500 has gained 25%, the Nasdaq has grown 32% and the SOX chip index has increased 51%.

Read: For chip companies, stocks soared as sales slumped in 2019 — what does that mean for 2020?

Jefferies analyst Mark Lipacis, who has a buy rating and raised his price target to $58 from $56, called the outlook “conservative” and said that the company’s March 5 analyst day should be a catalyst for the stock. Lipacis feels sales of the company’s data-center Epyc chip still has a way to go.

“We expect server share gains to accelerate as cloud customers become more familiar with Epyc,” Lipacis said.

Data-center sales were elevated in the spotlight this earnings season as longtime rival Intel Corp. INTC, -1.22% reported better-than-expected data-center sales last week.

Cowen analyst Matthew Ramsay, who has an outperform rating and a $60 price target, said “not much fundamentally changed” with AMD other than the soft console sales.

“While 1Q20 came in light due entirely to console seasonality, 2020 guidance should allow investors to feel comfortable with upside to consensus,” Ramsay said. “Importantly, we believe the guidance sets the table for upward revisions throughout the year with notebook & console the largest potential upside drivers, while server growth will be of the highest magnitude.”

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