AMD Slumps on Disappointing Guidance: What Wall Street's Saying
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Wall Street is largely keeping its thesis intact on Advanced Micro Devices (AMD) - Get Report , as analysts shrug off the chip maker's disappointing guidance for the third quarter.
The stock was dropping 7.24% to $31.48 a share in early trading Wednesday after AMD reported its second-quarter earnings after the close on Tuesday.
AMD guided for third-quarter revenue of $1.8 billion, plus or minus $50 million, below analysts' estimates of $1.94 billion. The company said it expects full year 2019 sales growth in the mid-single digits, "driven by significant sales growth" of the Ryzen, EPYC and Radeon processors, offset partly by lower-than-expected semi-custom revenue.
Earnings per share came in at an adjusted 8 cents for the second quarter, in line with Wall Street's estimate. Revenue was $1.53 billion, a 13% decrease from $1.76 billion a year earlier and just ahead of analysts' expectations of $1.52 billion. Computing and graphics revenue came in at $940 million, missing expectations of $983 million. Enterprise embedded and semi-custom revenue was $591 million, beating estimates of $544 million.
Some analysts moved their near-term estimates down, but most remain confident. Here's what they said:
Cowen & Co., Outperform, Price Target $40 (Unchanged)
"No change to our thesis, as we believe consoles and China are entirely responsible for second half downside," analyst Matthew Ramsay wrote in a note.
"Importantly, we believe 7nm CPU/GPU share gains remain on track with Rome, Ryzen and Navi in the midst of their ramps. We remain confident in sustainable growth/margin expansion with a line of sight toward $2+ EPS in 2021. We believe core AMD PC/GPU/server product expectations remain for 20% Y/Y growth in 2019 and remain fully intact versus management's prior outlook with the incremental console headwinds more than the annual guidance reduction."
Ramsay moved his 2019 revenue forecast down to $6.794 billion from $6.99 billion. His 2019 EPS estimates fell to 64 cents from 65 cents.
WedBush Securities, Outperform, Price Target $39 (Unchanged)
"Management appears to have created some earnings leeway by underguiding likely gross margin performance," analyst Matthew Bryson wrote in a note.
"Net, AMD's future prospects remain unchanged in our view as CPU and GPU performance was in-line with our prior expectations (except for the better EPYC sales). With the shifts in our model tied largely to the product cycle in consoles (which reverses next year) our model is roughly unchanged for 2020."
Bryson lowered his 2020 revenue estimate to $8.81 billion from $8.80 billion. But he raised his 2020 EPS estimate to $1.22 from $1.21.
Alliance Bernstein, Market-Perform, Price Target $25 (Unchanged)
"If you wanted to believe in AMD before last night, you likely still do following the report; at a minimum the new product ramp seems to be intact, and proceeding (mostly) as expected. But to buy the stock at $34, one presumably has to be underwriting something far above what is 'currently expected,' and guiding down (even if all due to consoles) isn't really a good look," analyst Stacy Rasgon wrote in a note. "Hope may stay alive for now (especially with Intel's latest 10nm server delay), but next quarter will likely be a critical test to see whether the narrative driving the shares can sustain, with a sharp inflection needed as we enter the meat of the company's 7nm product ramps."
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