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Morgan Stanley Sticks To Bearish Stance On AMD, Points To Risks In Graphics Business

Morgan Stanley Sticks To Bearish Stance On AMD, Points To Risks In Graphics Business

Morgan Stanley is sticking to its bearish thesis for Advanced Micro Devices, Inc. (NASDAQ: AMD), and said Wednesday that any upside benefits for the semiconductor maker need to be taken in context with its overall business.

The Analyst

Morgan Stanley's Joseph Moore maintains an Underweight rating on AMD's stock with a price target lifted from $8 to $11.

The Thesis

AMD is likely to take full advantage of Intel Corporation (NASDAQ: INTC)'s manufacturing challenges, which implies the bull case for servers and client CPUs is "getting stronger," Moore said in a research report. 

Intel's 10nm delay gives AMD sufficient time to "build upon its initial credibility" and establish relationships with major enterprise customers, the analyst said. 

The trajectory of AMD's graphics business remains a "significant concern" after a 100-percent increase in discrete graphic sales in the first quarter to $650 million, Moore said. While this is "nothing short of exceptional," the analyst projects that AMD will post quarter-over-quarter declining sales figures for the rest of the year, as market share gains in gaming do not justify such growth, he said.

Cryptocurrency-related revenue accounted for 10 percent of the total in the recent quarter, but checks suggest the business "stagnated" in the second quarter, the analyst said. The competitive environment for mining products will intensify, and there is potential for "significant downside" moving forward, he said. 

While investors have valid reasons to be optimistic about AMD's server and client CPU businesses, the same expectations need to be balanced against potential risks in its larger graphics business, according to Morgan Stanley. 

Price Action

Shares of AMD were trading lower by 1.29 percent at the time of publication Wednesday. 

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Latest Ratings for AMD

Jan 2021Cowen & Co.MaintainsOutperform
Jan 2021BMO CapitalDowngradesMarket PerformUnderperform
Nov 2020Wells FargoUpgradesEqual-WeightOverweight

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