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AMD’s growth outlook sparks both cheers and fears

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Advanced Micro Devices Inc. cut the midpoint of its full-year growth outlook to 25% from 29%, fueling mixed views on the company’s trajectory.

While some were encouraged that the chipmaker still sees relatively fast growth ahead amid the pandemic, others worried that AMD
AMD,
-2.55%

was setting a high bar for itself that will require perfect execution throughout the year.

See more: AMD earnings hit target, but annual forecast trimmed as business spending slows

Shares were down 2.7% in Wednesday morning trading.

“Even amid COVID-19, expectations for AMD have been rising given end-market exposure and [the] share-gain narrative,” wrote Bernstein analyst Stacy Rasgon, who rates the stock market perform and upped his price target to $45 from $40. “However, the stock has risen markedly as well, potentially dangerous in the current low-visibility environment, and frankly even when things were clearer the company has had a hard time judging their trajectory (this is the 8th quarter in a row that management has guided below consensus).”

The company expects second-quarter revenue of $1.75 billion to $1.95 billion, the midpoint of which came in below the FactSet consensus of $1.88 billion.

Don’t miss: AMD has only one question still lingering about COVID-19 effects

Looking at the company’s full-year view, Cowen & Co.’s Matthew Ramsey said the company “is now on the hook to deliver strong Q/Q server growth for each quarter of 2020 that should cement the EPYC franchise momentum and cast aside residual doubts as to its long-term potential.” Ramsey has an outperform rating and $60 price target on the shares.

“Put bluntly, progress is significant and impressive, but delivering on server targets remains essential given the (still) high bar of investor expectations,” he wrote.

The results offered “not enough upside to drive shares to the next level,” wrote Wells Fargo analyst Aaron Rakers, who rates the stock at equal weight with a $55 target price. He said these “will be viewed as somewhat lackluster 1Q20 results,” especially given expectations that AMD’s Enterprise, Embedded, & Semi-Custom (EESC) segment could see upside during the pandemic.

Others were more upbeat. Piper Sandler’s Harsh Kumar said that the 25% target is “impressive” given the current climate. “Despite the lower revenue outlook, management maintained its 45% gross margin target for 2020,” he said in a note to clients. “Overall, we believe the company is navigating the current environment well and remains in position to be a market share gainer over the long-haul.”

Kumar has an overweight rating on the stock and increased his price target to $60 from $58.

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Instinet’s David Wong was also encouraged by the forecast as he boosted his price target to $64 from $58.

“The full-year outlook implies, we calculate, an expectation of greater than 20% year-over-year sales growth in the second half of the year,” he wrote. “We think that, in an uncertain end market environment, AMD is continuing to benefit from solid share gain momentum, which we expect will continue through the rest of this year.” Wong has a neutral rating on the shares.

At least 10 analysts increased their price targets on AMD’s stock following the report, according to FactSet. Of the 40 analysts tracked by FactSet who cover AMD’s stock, 18 rate it at buy, 19 rate it at neutral, and three rate it at sell, with an average price target of $52.33.

AMD shares have added 14% in the past three months, as the S&P 500
SPX,
+2.51%

has declined 11%.



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