AMD Slips on Soft Q3 Outlook, Analysts Bullish on 'Generational Share Gain Opportunity'

© REUTERS AMD Slips on Soft Q3 Outlook, Analysts Bullish on 'Generational Share Gain Opportunity'

By Senad Karaahmetovic

Shares of Advanced Micro Devices (NASDAQ:AMD) are down about 5% in premarket Wednesday after the chipmaker issued a tepid outlook for the current quarter.

AMD reported an adjusted EPS of $1.05, in line with the analyst expectations. Revenue soared 70% to $6.55 billion, a tad higher than the $6.53 billion consensus. AMD also reported an adjusted operating margin of 30%.

“Each of our segments grew significantly year-over-year, led by higher sales of our data center and embedded products. We see continued growth in the back half of the year highlighted by our next generation 5nm product shipments and supported by our diversified business model,” the company said in a press release.

For this quarter, AMD sees revenues between $6.5 billion and $6.9 billion with the midpoint of the guidance coming in below the consensus of $6.81 billion. AMD also said it expects to record an adjusted gross margin of 54%, again lower than the estimate of 54.2%.

On a full-year basis, AMD sees revenue of about $26 billion to $26.6 billion, higher than the estimate of $26.22 billion.

Despite the soft Q3 outlook, analysts remain very positive on AMD shares. A BofA analyst hiked the price target to $120 from $110 as the company has a “generational share gain opportunity.”

The analyst also urged investors to look past quarter noise.

“We continue to see AMD solidly positioned to expand its server market share towards 35% in the next 2-3 years vs <20% currently,” the analyst told clients in a note.

A Rosenblatt analyst reiterated a Buy rating and a $200 per share price target on AMD stock after “strong results.”

“We like the setup going forward. On potential weakness on macro-PC issues today we would back up the truck as a planetary alignment never seen in Silicon Valley is approaching the x86 world. AMD’s datacenter business is set to be larger than Intel’s in our opinion in the next couple of years,” the analyst wrote in a client note.

Finally, a Citi analyst cut the price target to $96 from $110 but says he could turn more positive “as soon as coast is clear.”

“We believe AMD could experience more downside when the datacenter market slows although that could provide us an opportunity to upgrade the stock. We maintain our Neutral rating on AMD and reiterate that AMD could be one of the stocks we would like to own when the recession ends,” the analyst said in a note.