Analysts’ recommendation for AMD
Advanced Micro Devices (AMD) stock rose more than 70% in the first seven months of 2018 due to strong demand for Ryzen CPUs (central processing unit) and Radeon GPUs (graphics processing unit). The demand encouraged analysts to increase their median target price for AMD from $13.5 in May to $16 in August.
Even Intel (INTC) started strong in the first quarter. However, delays in launching the 10nm (nanometer) process technology and the abrupt resignation of CEO Brian Krzanich caused the stock to fall. Analysts reduced their median target price for Intel from $61 in May to $58 in August.
Goldman Sachs has been pessimistic about AMD for a long time—even when the stock outperformed its peers, the industry, and the market. According to a CNBC article on August 10, Goldman Sachs upgraded AMD from “sell” to “neutral” and increased its target price from $13.25 to $21, which represents an upside of 8.6% from the current trading price.
AMD and Intel operate in a duopoly market where one’s loss is the other’s gain. In a research note, Goldman Sachs analyst Toshiya Hari stated that the delay in Intel’s 10nm process technology would allow AMD to gain share from the former in the PC and server CPU markets in the next two years.
Intel’s loss is AMD’s gain
Smaller process nodes improve a chip’s performance and power efficiency. Until recently, Intel was unbeatable in process technology. While AMD managed to develop competitive chips, it lagged behind Intel in process technology. As a result, AMD couldn’t gain market share.
Intel delayed the launch of its 10nm chips until the fourth quarter of 2019, while AMD plans to launch its 7nm chips built in TSMC’s (TSM) plants by the end of 2018. The launch would help AMD gain market share. Toshiya Hari expects AMD’s server chip market share to rise to 2.2% in 2018, 5.1% in 2019, and 9.4% in 2020.
Next, we’ll discuss analysts’ earnings estimates for AMD.