Wall Street tells investors to buy Advanced Micro Devices stock every time it dips. Analysts believe the chip maker’s second-quarter financial results show growing long-term value despite current difficulties in the PC market.
) reported better-than-expected earnings but forecast slightly less revenue than analysts estimated for the September quarter, citing a sharp deterioration in PC demand. In a conference call to discuss earnings, management lowered its forecast for sales across the PC industry, saying it now expects the market to shrink by a percentage point in the “mid-teens” this year, compared with a previous estimate for a “high single digit” drop.
Rosenblatt analyst Han Mosesmann reiterated a Buy rating on AMD stock with a $200 price target, a call that suggests the shares could double. Shares of AMD were down 1.5% at $97.79 early Wednesday.
“We like the forward setup,” he wrote. “In possible weakness in macro-PC matters today, we’d back the truck as a planetary alignment never seen in Silicon Valley approaches the x86 world,” pointing to the possibility of AMD gaining market share from Intel (
) with superior products. Even Intel has said it is likely to lose share for high-end server chips.
Both AMD and Intel use the x86 chip architecture to build the processors that act as the main computing brains for PCs and servers.
Bernstein analyst Stacy Rasgon is also confident in AMD’s ability to take significant share from its main competitor. He reaffirmed an Outperform rating and a $135 price target for the company.
“AMD is handling a seemingly free-falling PC market significantly better than its biggest competitor last week, and in light of that we don’t view the outlook here as extremely negative,” he wrote. “The long-term story still looks very good, with a window wide open on the back of continued delays and advancements of Intel’s roadmap and solid market exposure.”
There were clear signs in the June quarter of a big shift in market share between the two competitors in the high-end server chip market. AMD’s second-quarter data center revenue rose 83% year-over-year, while
Last week it reported a 16% drop in sales for its data center server unit over the same period.
It’s been a tough year overall for chip stocks as investors worry about slowing demand for chips and a weakening global economy. AMD shares are down about 32% this year, while the
iShares Semiconductor ETF
(SOXX), which tracks the performance of the ICE Semiconductor Index, is down 24%.
However, if analysts are correct about AMD’s prospects of divesting its business from Intel, it will bode well for the company’s stock price once the current Great Recession ends.
Write to Tae Kim at firstname.lastname@example.org