AMD Slides After Goldman Says Sell With Intel, Nvidia Threats Being Ignored

Shares of AMD (AMD) are slipping after Goldman Sachs analyst Toshiya Hari initiated coverage of the stock with a Sell rating as he believes current risk-return is unfavorable, with the potential improvement in fundamentals already priced into the shares. Back in March, his peer at Macquarie had started the stock with a Neutral rating, while Jefferies analyst Mark Lipacis reiterated his bullish view on AMD, citing positive signals he saw about the company's turnaround.

GOLDMAN SAYS SELL AMD: In a research note this morning, Goldman Sachs' Hari started AMD with a Sell rating and $11 price target, saying that while he acknowledges the successful turnaround over the past few years, current valuation multiples are "difficult to justify" as the market seems to have already priced in a sharp improvement in the company's competitive and financial position. Further, the analyst told investors that AMD's current valuation reflects a "very bullish" 2018 scenario, which is unlikely given competitive threats from Intel (INTC) and Nvidia (NVDA). If AMD were to gain meaningful traction with its new products this year, Intel and Nvidia would be likely to fight back in late-2017 and/or 2018 in the form of pricing concessions, Hari contended. Additionally, the analyst pointed out that he expects AMD's shares to underperform the market following the May analyst day given the company's strong performance over the last 16 months and a higher bar on the execution front.

MACQUARIE STAYING ON THE SIDELINES: Late last month, Macquarie analyst Srini Pajjuri also initiated coverage of AMD. However, he started the stock with a Neutral rating and a $14 price target, saying that the run-up in the stock is reflecting significant share gains in high-end desktop and server markets, which he believes will be a challenge. Nonetheless, the analyst pointed out that near-term estimates appear "reasonable" and noted that the stock could continue to get the benefit of the doubt for another 1-2 quarters. AMD's management has done "an excellent job" refocusing its limited resources, improving the balance sheet, and leveraging its IP to generate new revenue streams, Pajjuri contended, adding that the company's new "Ryzen" PC product and "Naples" server product appear competitive.

JEFFERIES BULLISH ON AMD: In a note to investors on March 24, Jefferies' Lipacis voiced a bullish stance on AMD, saying that his recent checks in the Asia PC supply chain support his thesis of a systemic turnaround at the company, namely higher responsiveness and better execution, enthusiasm for Zen Desktop MPUs, and positive expectations for Zen Server. Aside from Microsoft's (MSFT) collaboration announcement and his previous checks that two China-based hyper scale players were interested in the Zen Server, the analyst noted he "heard rumblings" that another North American hyper scale player was also interested. Lipacis pointed out that he believes that there seems to be a higher level of trust in AMD's ability to execute, and reiterated a Buy rating and $16 price target on AMD's shares.

PRICE ACTION: In morning trading, shares of AMD have dropped 8% to $13.02. The stock had risen about 25% so far in 2017 prior to today's pullback.