Tuesday, February 7, 2017

AMD Jumps Again, Stock May Now Be Getting Into Frothy Territory

Investors need to see how new products fare.


By Therese Poletti
MarketWatch
February 7, 2017

Shares of chip maker Advanced Micro Devices Inc. have been on a tear since the company reported better-than-expected earnings last week, in a report that was drowned out by earnings from tech behemoth Apple Inc.

In the past five days, its shares are up nearly 28%. On Monday alone, AMD’s AMD, +11.36% stock soared 11.36%. A positive story in Barron’s, with the headline “AMD’s Revival is for Real,” and comments by CNBC’s Jim Cramer provided the most fodder for traders, but there was also an unconfirmed report that it will license its graphics chip designs to partner/frenemy Intel Corp. INTC, -0.68% when its deal with Nvidia Corp. NVDA, +2.56% ends in March. Shares of AMD topped the most active gainers on Monday, and outperformed the S&P 500 SPX, -0.21% and the Dow Jones Industrial Average DJIA, -0.09%

An AMD spokesman declined to comment on the rumors of another licensing deal with Intel. (AMD already licenses the core x86 chip design from Intel.)

Last week, several analysts raised their earnings estimates and price targets on AMD, the perennial No. 2 to Intel. AMD has a history of ups and downs, including financial woes, management issues and product execution problems. But as MarketWatch has noted in a previous column, many investors are counting on a new product family, known as Zen, to help it regain lost share in the server market, a fast-growing field where it has not been a player for the past few years.

Betsy Van Hees, an analyst with Loop Capital Markets, has a buy rating on AMD and raised her price target to $12 last week. But she noted that she also has a new tone of cautiousness, because of concerns that the stock is now “priced to perfection.”

“Although AMD had an impressive year of beats and raises in 2016, we believe the bar has been set very high in 2017 with AMD having no room for error,” she said.

AMD is set to launch three major chips in the first half of this year: A desktop processor called Ryzen based on its new Zen family architecture; graphics processing chips called Vega; and server chips also based on the new Zen architecture, with a processor called Naples. “We believe over the course of AMD’s long history that this is the first time the company has ever embarked upon such an aggressive endeavor to ramp three new products in such a short amount of time,” Van Hees wrote.

The results from all these product launches are not going to be evident overnight, noted Stacy Rasgon, an analyst with Bernstein Research. “Investors are going to want to see the fruits of the company’s labors translate into meaningful financial upside,” Rasgon wrote last week. “Additionally, given likely channel dynamics it will probably be 2018 before we know if gains, if any, are sustainable. This still requires a leap of faith we’re not quite ready to make.”

AMD’s management, under Chief Executive Lisa Su, who joined AMD in October 2014, has made huge strides in building credibility again on Wall Street. Now, the next question is whether those same kind of gains can be made again in the corporate computing market. With its shares now surging past many analysts’ current price targets, it might wise to proceed with some caution.


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