The overall chip sector logged its worst quarter in nearly 3 years, with the PHLX Semiconductor Index down 1.1% in the second quarter. However, Advanced Micro Devices (NASDAQ:AMD) emerged as the best performing stock in the SOX index in the second quarter, up around 49%, owing to strong graphics chip demand. Here we use TipRanks data to take a closer look at whatWall Street’s top analysts see in store for this volatile stock.
The sector has become an important market trend forecast proxy, given its high share of overall market capitalisation and the never-ending list of products using chips as product components. Coming back to AMD, the stock’s better performance was attributed to multiple bullish factors, ranging from an expanding customer base to better tech in its GPUs. Cisco’s (NASDAQ: CSCO) decision last month to offer AMD’s EPYC chips in its UCS series servers was one of the major factors driving AMD higher. "AMD has done some great things with their EPYC line-up in terms of core density, memory, bandwidth and the PCIe lanes available. So for a high-density play, they were a great choice," Todd Brannon, director of product marketing for UCS said. "We're bringing AMD into the family with this product,” he added.
Another development was AMD’s announcement that National Institute for Nuclear Physics (INFN) in Italy picked their EPYC 7351 processor to power its computing cluster. “With the adoption of AMD EPYC into the institute, we are offering the latest generation of processing capability to our users and expanding the overall compute capabilities,” Luca dell’Agnello, head of the Tier-1 computing center, INFN said.
AMD’s gaming offering has been a hit with customers too, with multiple rumors of new 7nm Vega 20 GPUs being in the pipeline. If all rumors were to be believed, AMD might be the first chipmaker to exploit PCI-Express 4.0 specification's attributes in its graphics cards, Vega 20. Adding to the joy, AMD has been generating great demand for cryptocurrency mining as well. AMD’s Radeon lineup has been a preferred choice among crypto miners and the company believes 10% of its revenues in the first quarter came from the digital currency market.
Moreover, from a fundamentals perspective, AMD reported a huge 40% year on year increase in revenues in the first quarter. In the second quarter, the company expects a 50% year over year increase in the top line and gross margins of 37% compared with 36% in the previous quarter.
Bank of America analyst Vivek Arya has a Buy rating on the stock. He is also demonstrating an increasingly bullish sentiment on the stock, as he recently raised his price target on the stock to $20 from $17. This indicates big upside potential of 32%. "We believe the street continues to underappreciate the pricing (GM upside) from AMD’s mix-shift to newer Ryzen and EPYC server products, which can more than offset any risk from graphics cards sold to crypto miners," Arya said. "Execution is key, and Intel's incumbency and resources cannot be taken lightly, but we believe AMD has a generational opportunity to become materially bigger in computing,” he added. Note that Arya is a five-star analyst for his record of precise stock picking ability.
However, there are some clouds on the horizon for the chipmaker, as AMD’s Ryzen chips have generated less than expected demand and fears of a trade war with China has been worrying investors. Owing to these headwinds, Tipranks shows mixed forecasts about AMD, with a Hold analyst consensus rating. Out of the 17 analysts polled in the last 3 months, 7 have a buy rating on the stock, 7 have a hold rating, while 3 have a sell rating. Moreover, Tipranks has a price target of $15.67 currently, suggesting a potential 3.4% upside from current levels.
All in all, the stock seems to have some upside from current levels. However, investors are advised to be cautious, as geopolitical factors coupled with worries of overvaluation pose threats to the stock’s potential rally. For example, AMD currently has a PE ratio of 78.9, compared with just 21.4 for Intel Corp (NASDAQ:INTC) and 39.5 for Nvidia Corp (NASDAQ:NVDA).
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.