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Stocks  | July 30, 2020

Advanced Micro Devices Inc.’s stock surged to close at a fresh record Wednesday after the chip company’s strong second quarter and outlook signaled a sea change in the semiconductor market following Intel Corp.’s announced delays of next-generation chips last week.

AMD shares rallied to close up nearly 13% at a record $76.09, after reaching an all-time high of $77.19 during Wednesday’s session.

For the year, AMD shares are up 66%, compared with a 14% gain for the PHLX Semiconductor Index, an 18% gain for the tech-heavy Nasdaq Composite Index, and a 0.9% rise by the S&P 500 index.

Late Tuesday, AMD topped Wall Street estimates on its quarterly results and outlook, boosting a full-year outlook that had been considered optimistic even before the COVID-19 pandemic hit.

Analysts, on average, raised their revenue estimates for AMD to $2.49 billion from $2.31 billion for the third quarter after AMD forecast sales of $2.45 billion to $2.65 billion. For the year, Wall Street sees revenue of $8.72 billion, up from a previous estimate of $8.4 billion, after AMD forecast annual sales of roughly $8.88 billion.

Susquehanna Financial analyst Christopher Rolland upgraded AMD to a positive rating from neutral because the company was “capitalizing on Intel’s 7-nm faceplant.” Rolland also hiked his price target to $85 from $64.

Rolland was referring to last week’s surprise announcement that Intel Corp. was delaying the release of its 7-nanometer chips until at least late 2022 because of manufacturing issues. Intel shares shed 2.4% to close at $48.07 Wednesday, and are down nearly 20% on the year.

In chip parlance, nanometers, or nm, refers to the size of the transistors that go on a computer chip, with the general rule being that smaller transistors are faster and more efficient in using power. AMD, on the other hand, already sells 7-nm chips, and has spent 2020 releasing more and more versions of them.

Rolland sees AMD capturing 20% share of servers by 2023, following an announcement from the company that it reached its goal of “double-digit” market share of the server market. By 2023, Rolland also sees AMD capturing 35% of the notebook market, up from the current 20%; 40% of desktops, up from 20%; and 10% share of data-center GPUs, up from 3% today.

Of the 36 analysts who cover AMD, 14 have overweight or buy ratings, 19 have hold ratings, and three have sell ratings. Of those, 20 hiked their price targets on the stock, resulting in an average price target of $70.68, up from an average of $55.48, according to FactSet data.

Bernstein analyst Stacy Rasgon, who has a market perform rating on AMD and raised his price target to $70 from $45, said that while some critics could complain that AMD’s operating expenses are limiting earnings per share, now is the time for the company to invest in its operations, “given it is critical for them to cement their positioning in the wake of Intel’s struggles.”

“And to that end, the emerging reversal of fortunes between the two companies is entering into the realm of the mind-boggling as AMD for a change appears ascendant, while their larger competitor flounders,” Rasgon said.

Jefferies analyst Mark Lipacis, who has a buy rating and raised his price target to $86 from $63, called the second quarter a “watershed” event for AMD, in that he expects AMD’s share gains on Intel to quicken.

Cowen analyst Matthew Ramsay, who has an outperform rating and raised his price target to $90 from $65, said AMD’s “strong results and (more importantly) consistency of product execution stood in stark contrast to Intel’s roadmap stumbles.”

“Though significant progress to date, we believe AMD’s share gains are just beginning to play out in the market with 7nm server, desktop and GPU products all launched over the last few quarters and 7nm notebook even more recently,” Ramsay said.

Oppenheimer analyst Rick Schafer, in a note titled “Let the Games Begin!,” said that while AMD was a “compelling growth” story, he was going to wait on the sidelines because of the high valuation of the stock. Schafer has a perform rating on AMD.

Schafer cautioned that while he thinks AMD can continue to grow its share in the server market, “further gains may be limited given tight 7-nm availability” at Taiwan Semiconductor Manufacturing Co., which manufactures AMD’s chips. American depositary receipts of TSMC surged 7.5% Wednesday to close at $82.67.

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