If the semiconductor surge comes to an end, Advanced Micro Devices Inc. could be best positioned to sustain the pullback, Morgan Stanley analysts wrote Wednesday.
AMD
AMD,
-0.05%
shares performed slightly better Wednesday compared with those of other chip makers, which saw shares decline overall, after Morgan Stanley resumed coverage of the stock now that Xilinx, which was acquired in February, is firmly a part of AMD. Morgan Stanley was identified as the lead financial adviser for Xilinx, when the deal was announced in October 2020.
Analyst Joseph Moore established an overweight rating and $103 price target, writing that the company “offers potential for solid numbers at a reasonable valuation,” given its near-50% selloff from late-November highs.
“Overall, we are optimistic that the company’s prospects in data center (CPU, GPU, and FPGA) will provide enough growth to drive further positive estimate revisions over the next several quarters,” Moore said in a note.
AMD shored up its data-center offerings when it closed on its purchase of Xilinx, which specializes in field-programmable gate array, or FPGA, chips that can be configured by a customer or a designer after they are made. Those chips, in turn, are used as accelerators in data centers to boost computing power and improve power efficiency in existing physical spaces.
“Apprehensions we see in the consumer linked end-markets should leave AMD less exposed comparatively than key competitors, allowing us to underwrite conservative numbers that shouldn’t surprise much to the downside,” Moore said.
Analysts are concerned that the explosion in semiconductor sales amid a pandemic-influenced supply crunch could lead to a severe downturn in the months ahead, as inventories build and customers halt purchases. That has been a major factor in a strong downturn for chip stocks in the first half of the year.
For more: Why semiconductor stocks are ‘almost uninvestable’ despite record earnings amid a global shortage
“While a digestion phase in PCs and consoles appears likely, and we are budgeting for some caution next year, we believe strength in server (with further market share gains) should allow the company to keep posting solid growth at a now reasonable valuation,” Moore said.
Separately, AMD announced late Wednesday it appointed Mathew Hein to the position of chief strategy officer, effective Monday. Hein comes from investment banking firm DBO Partners, where he was lead adviser to AMD “on a number of opportunities.” Up until 2013, Hein worked at Morgan Stanley for 17 years, where Hein held positions such as Technology Investment Banking Group managing director, and global head of Semiconductor Banking.
Reporting directly to AMD Chief Executive and Chair Lisa Su, “Hein will be responsible for advancing the company’s strategy across an expanded market for high-performance and adaptive computing solutions and will work closely with the AMD executive team to accelerate the company’s next phase of growth.”
Earlier in the month, AMD doubled-down on its commitment to expand its data center offerings, and forecast average annual revenue growth of about 20% over the next three to four years, while sticking to its second-quarter and annual forecast provided in early May.
Analysts surveyed by FactSet expect revenue of $6.43 billion for the second quarter, compared with AMD’s estimated $6.3 billion to $6.7 billion, and $26.2 billion for the year, based on AMD’s estimate of about $26.3 billion.
AMD shares closed down less than 0.1%, while the PHLX Semiconductor Index
SOX,
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finished down 1.1%. Over 2022, AMD shares have dropped 42%, compared with a 34% drop in the SOX index, and a 21% fall in the S&P 500 index
SPX,
-0.13%.
Of the 41 analysts who cover AMD, 27 have buy-grade ratings, 13 have hold ratings, and one has a sell rating. On average, analysts have a consensus price target of $135.30 on the stock, a 62% premium to Wednesday’s close.
