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AMD: Why Are Wall Street Analysts Bullish?

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Analysts’ ratings 

Wall Street analysts are divided on Advanced Micro Devices (AMD) and Intel (INTC). Among the 34 analysts covering Intel, 13 recommended a “buy,” 15 recommended a “hold,” and six recommended a “sell.” For Advanced Micro Devices, the distribution is similar. For Advanced Micro Devices, 15 analysts recommended a “buy,” 16 recommended a “hold,” and six recommended a “sell.”

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On April 5, Wells Fargo analyst Aaron Rakers downgraded Intel stock to “market perform” from “outperform” due to the cautious second-quarter outlook and competition from Advanced Micro Devices. Nomura Instinet initiated coverage of Intel and Advanced Micro Devices on April 3 and put them in its top picks. On April 8, Bank of America Merrill Lynch analyst Vivek Arya raised his target price on Advanced Micro Devices to $35 from $30.

All three analysts agreed that Intel and Advanced Micro Devices are suffering from a cyclical downturn in 2019. However, the analysts are bullish on Advanced Micro Devices because of its long-term growth prospects in 2020 and beyond.

Why are analysts bullish?

Advanced Micro Devices is set to launch a complete suite of products on TSMC’s (TSM) 7nm (nanometer) node through 2019. The products will likely give Advanced Micro Devices a technological edge over Intel. Intel is facing manufacturing issues and 10nm delays, which are increasing its costs.

Usually, when Advanced Micro Devices launches competitive products, Intel resorts to a price war to throw out the competition. Intel’s current management probably won’t get into an aggressive price war. The new management is focused on improving the return on investment and expanding AI and 5G instead of fighting with Advanced Micro Devices on pricing, which is visible in the pricing of Intel’s new Cascade Lake server CPUs. The new server CPUs are priced close to Intel’s predecessors.

The last time Vivek Arya raised his target price on Advanced Micro Device was September 5, 2018, when the stock was trading at $28.5. At that time, Advanced Micro Devices stock rose to its 52-week high of $34.14 by the end of September 2018. History is repeating itself. Arya has increased his target price on Advanced Micro Devices to $35 when the stock is trading at $28.5. If Advanced Micro Devices reports strong 2019 guidance, the stock could reach close to the $35 target price.

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