Citi Throws In Towel On AMD Sell Call, Hikes Target Nearly $80 Per Share

Citi analyst Christopher Danely upgraded AMD (AMD) to Neutral from Sell as his checks indicate the company's share gains are "finally accelerating" in the server market, especially at hyper-scale companies such as AWS (AMZN) and Google (GOOG). The analyst, who expects AMD's momentum to continue, thinks Intel's (INTC) gross margins could dip into the 40's, similar to what was seen during the last AMD product cycle.

SERVER SHARE 'FINALLY' ACCELERATING: Citi analyst Christopher Danely upgraded AMD to Neutral from Sell with a price target of $95, up from $17. The analyst's channel checks indicate AMD share gains "are finally accelerating" in the server market, especially at hyper-scale companies such as Amazon Web Services and Google. Danely noted that AMD server market share increased 1.5% in the first quarter for the first time in fifteen years. He expects AMD's share gains to accelerate and reach 20% in 2022, close to the previous peak, and believes the company can continue its growth trajectory due to continued production delays at Intel, which he thinks might happen for 7nm products as well.

Overall, the analyst expects the momentum to continue and believes Intel's gross margin percentage could dip into the '40s, similar to the last AMD product cycle. Additionally, he expects a price war in CPUs when the PC space cools and as Intel market share loss worsens in high margin server segments. Danely, who raised estimates on AMD, recommends a pair trade of overweight AMD and underweight Intel.

WHAT'S NOTABLE: After Intel confirmed it is working with TSMC (TSM) for its 2023 product lineup, but intimated it would not be for "core" microprocessors, Citi's Danely told investors last week that he believes outsourcing CPUs to TSMC would help Intel gain back share. Nonetheless, the analyst argued that this will take at least two years. In the meantime, he expects AMD's share gains in the server market to accelerate and result in downside to Intel estimates. Danely has a Neutral rating on Intel shares.

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