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Some Analysts Are Bearish on AMD: Here’s Why

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Will AMD’s stock recover?

Advanced Micro Devices’ (AMD) shares fell 24% to around $10 in just one day, after rising almost threefold in one year. The company’s fiscal 2Q17 guidance failed to meet investors’ high expectations. Even at $10, the stock has not returned to square one, indicating that this is a market correction in response to the hype created over the company’s new products.

As the company’s new products hit the market later this year, its stock price may recover. However, the current price correction signals that AMD’s stock price growth may slow.

Whereas Wall Street analysts have “hold” recommendation for AMD, they have “buy” recommendations for Intel (INTC) and NVIDIA (NVDA). The stock price will largely depend on the new products.

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Analysts bearish about AMD 

Macquarie Group, Goldman Sachs, and Citigroup downgraded AMD’s stock over concerns that revenue growth may not convert into higher profits. Macquarie analyst Srini Pajjuri lowered the price target for AMD from $14 to $10 as he believes that AMD may have a tough time improving its margin if Intel resorts to price cuts. Intel and NVIDIA operate at 60% gross margins, giving them ample room to make aggressive price cuts without hurting their margins significantly. AMD operates at a 34% gross margin and has little room for any price cuts without impacting its margins.

While Citigroup has reiterated Macquarie’s concerns, it is more bearish than the latter. Citigroup has set its price target for AMD at just $4 per share as it is concerned about AMD’s potential to remain profitable.

Goldman Sachs analyst Toshiya Hari has cut the price target for AMD for the second time in one month from $11 to $10.60. He believes that the stock price has already factored in high growth estimates that are not yet visible in its earnings. For the stock to grow further, AMD has to first report strong earnings growth.

Neutral

Oppenheimer, Jefferies, Merrill Lynch, Loop Capital, Canaccord Genuity, and Mizuho Securities have reiterated their “buy” ratings for AMD as they believe that its new products could drive growth in the long term.

The next big day for AMD’s stock will be May 16, 2017, the company’s Financial Analyst Day. Analysts’ ratings could change depending on how much the company impresses analysts with its product roadmap and growth strategy. Some analysts are optimistic about AMD and consider the market correction an opportunity to buy. We’ll look into this further in the next part of this series.

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