Advanced Micro Devices: Bernstein Cuts Target Price, Rating

Advanced Micro Devices, Inc. (NASDAQ:AMD) rating on the stock has recently been downgraded from “market perform” to “underperform” by research and brokerage firm Bernstein. Bernstein’s price target on the stock is $3 thereby indicating a 40% decline.

Why the Downgrade

Bernstein is not very optimistic about the stock in the near term as it thinks that the company’s new Zen chip sales will take at least one more year to ramp up.

Though the company reported better-than-expected performance in the first quarter, Bernstein thinks that’s not going to be repeated in the second quarter. The firm cited channel fills behind this expectation of a dismal performance.

Moreover, Bernstein thinks that speculations about learning (AI) and virtual reality (VR) sales are further pushing up growth expectations for graphics processing unit (GPU) sales that may not eventually materialize.

AMD shares increased nearly 150% so far in 2016 and this has increased the possibility of a downfall after such a long rally.

Bottom Line

AMD is the second-largest producer of microprocessors, GPUs and chipsets in the world. Strength in graphics, growing semi-custom business, solid datacenter offerings, improved utilization of resources and solid embedded business are the major positives for the company.

The company is making all efforts to further strengthen its position in key markets with the introduction of several Accelerated Processing Units (APU) and GPUs. Its Radeon Technologies Group focuses on the graphics business and on improving its performance further in traditional graphics markets. At the same time, the company is taking initiatives in immersive computing markets like virtual and augmented reality, which is a big positive.

However, a secular decline in PC, an increasing competition from Intel (NASDAQ:INTC) and execution risks could hurt the profits of the company.

Currently, AMD has a Zacks Rank 3 (Hold).

Stocks to Consider

Some better ranked stocks in the same space include CEVA Inc. (NASDAQ:CEVA) , FormFactor Inc. (NASDAQ:FORM) and On Track Innovations Ltd. (NASDAQ:OTIV) each holding a Zacks Rank #2 (Buy).