Wall Street analysts had to go out of their way to find fault with the Advanced Micro Devices Inc.’s strong quarterly report in an earnings season where the semiconductor sector’s forecasts have been spotty.
AMD AMD, +6.14% shares rallied as much as 11% Wednesday, briefly exiting bear-market territory, and were last up 4% at $121.21. Shares are still 25% off their closing high of $161.91 set on Nov. 29. Over the past 12 months, however, AMD shares have gained 37%, while the PHLX Semiconductor Index SOX, +1.71% is up 16%, the S&P 500 index SPX, +0.67% has gained 19%, and the tech-heavy Nasdaq Composite Index COMP, +0.44% has gained 5%.
AMD clobbered Wall Street estimates on all fronts late Tuesday, and executives said they expected profit margins higher than 50% going into 2022 and reiterated expectations that the $35 billion acquisition of Xilinx Inc. XLNX, +5.56% will close this quarter, with one final regulatory approval from the U.S. Federal Trade Commission remaining.
At least 18 analysts covering AMD raised their price targets in reaction to the report, and three raised their ratings on the stock. Two analysts downgraded shares, and two lowered their price targets.
Bernstein analyst Stacy Rasgon, who retained a market perform rating, hiked his price target to $150 from $130 and called the earnings report a “sl(amd)unk,” saying the chip maker “crushed it” on its outlook.
“With a beat this big, you have to dig to find nitpicks; if we did so, we might point to upside vs our prior model that is mostly console and PC driven, and/or GMs that (strong as they are) might even leave us wishing for more given the likely positive mix shift the company should be seeing,” Rasgon said.
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“Nitpicking” appears to have become a theme with AMD earnings since at least last quarter.
Cowen analyst Matthew Ramsay, who has an outperform rating and upped his price target to $160 from $150, said AMD’s results spoke for themselves and picked up on his own nitpicking.
“The only nit-pick, in our view, was guidance implying heavy OpEx investment limiting leverage, though we believe there could be some embedded conservatism ahead of the Xilinx merger closing and associated cost synergy analysis such that the deal remains EPS neutral/accretive,” Ramsay said.
Ramsay also said AMD’s strong forecast pointed to its strong supply-chain relationship with third-party fab Taiwan Semiconductor Manufacturing Co. TSM, +0.26%
“We believe the confidence to guide >30% Y/Y growth in 2022 (off 2021’s 68%) indicates the strength of AMD’s relationship with TSMC and confidence it has secured necessary wafer starts to support this robust demand,” Ramsay said.
Recently, TSMC in its most recent earnings report, doubled down from last year on how much it was going to spend in 2022 on fab capacity, budgeting $40 billion to $44 billion.
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Susquehanna Financial analyst Christopher Rolland, who has a positive rating on AMD and hiked his price target to $180 from $175, noted that AMD’s supply chain agreements would be a godsend to Xilinx.
On the call with analysts late Tuesday, AMD Chief Executive Lisa Su said the company had “made significant investments to secure the capacity needed to support our growth in 2022 and beyond,” and that it planned to “continue growing significantly faster than the market.”
Xilinx specializes in so-called field-programmable gate array, or FPGA, chips that can be configured by a customer or a designer after they are made.
“We believe AMD will use their most recent supply chain agreements to procure the wafers Xilinx so desperately needs,” Rolland said. “We note 70+ week lead times for many XLNX products, a condition that AMD supply should help alleviate to provide a high-value source of upside.”
Jefferies analyst Mark Lipacis, who has a buy rating and raised his price target to $155 from $145, said he expects AMD to keep growing its data-center business at the expense of Intel.
With Intel’s data-center sales expected to remain at 37% of revenue for the next few quarters, Lipacis said he forecasts that AMD’s will grow from 24% in the recently reported fourth quarter to 31% by the second quarter.
AMD’s report is beginning to right the ship for the chip sector that saw choppy forecasts last week.
Last week, Intel Corp. INTC, +0.25%, Lam Research Corp. LRCX, +2.80%, KLA Corp. KLAC, +0.71%, and Western Digital Corp. WDC, +0.32% all reported forecasts that fell short of Wall Street expectations in some way, with Texas Instruments Inc. TXN, +2.48% and NXP Semiconductors NV NXPI, +0.61% being the only companies to forecast a better-than-expected outlook.
Of the 40 analysts covering AMD who are tracked by FactSet, 23 rate the stock the equivalent of a “buy,” while 16 have “hold” ratings and just one calls the stock a “sell.” The average price target as of Wednesday morning was $153.90, up from a previous $145.92, according to FactSet.