AMD Downgraded, Analyst Thinks Intel Deal Is 'Unlikely'

Shares of Advanced Micro Devices, Inc. (NASDAQ: AMD) soared higher by 11 percent on Tuesday ahead of the company's analyst day presentation, which kicked off after the market close.

By Wednesday morning, the stock gave back nearly 6 percent as the company's presentation fell short of satisfying some of Wall Street's bulls.

Loop Capital Markets' Betsy Van Hees downgraded AMD's stock from Buy to Hold with an unchanged 12-month $13 price target. Leading into the presentation, the analyst's checklist of what management should have discussed included:

• Details on a path towards improving gross margins
• Proof of design wins in services
• Guidance on Ryzen and Vega's ramp

Van Hees said that while AMD did communicate a path towards improving gross margins, the company also issued a long-term pro forma earnings per share guide of at least $0.75 per share. Unfortunately, this figure "supports our downgrade" as shares are trading at around 17x this long-term model, which represents a slight discount to the blended group average of 18x 2018 Street estimates.

Van Hees also noted that the 17x valuation already factors in the launches of Ryzen CPUs (central processing unit), Vega GPUs (graphics processing unit) and the anticipated new server chip EPYC.

Intel Chatter Unlikely A Reality

Van Hees also discussed an unconfirmed report which suggested Intel Corporation (NASDAQ: INTC) ditched NVIDIA Corporation (NASDAQ: NVDA) to sign a new licensing deal with AMD.

The analyst suggested this is "unlikely" to happen since Intel doesn't even need AMD's GPU IP, as its agreement with Nvidia implies Intel has "rights in perpetuity" to every one of Nvidia's GPU patents up to January 2017.

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