Cowen's Bullish Thesis 'Unchanged' After AMD's Q3 Print

Advanced Micro Devices, Inc. AMD shares took a big hit in the aftermath of its quarterly results Wednesday, with the stock pulling back about 26 percent in three sessions.

Following the "noisy" Q3 and "disappointing" Q4 guidance, an analyst at Cowen spent time with AMD management and reexamined the sell-side firm's model for the stock, coming away with an intact long-term bullish.

The Analyst

Analyst Matthew Ramsay reiterated an Outperform rating on AMD shares and lowered the price target from $33 to $26.

The Thesis

Cowen's long-term bullish thesis on AMD is predicated on "much improved products, a new near -qual silicon manufacturing backstop with Taiwan Semiconductor Mfg. Co. Ltd TSM and a customer base anxious for real competition within large duopoly markets," Ramsay said in a Monday note. (See his track record here.)

Near-term weakness in the GPU franchise is unlikely to impede AMD's push toward a mid-teens share of its target markets, significant earnings growth and margin expansion over the next six to eight quarters, the analyst said.

AMD CEO Lisa Su is confident in the 2019-20 timeline for the 7nm product, which is expected to show two times silicon density improvements and significantly better performance/watt for the breadth of AMD's CPU/GPU portfolio, Ramsay said. 

The chipmaker can deliver upside to its elevated gross margin expectations and FY2020 EPS estimate of 75 cents with consistent product execution across PC, GPU and server roadmaps, according to Cowen. Strong growth in the Ryzen desktop and notebook chips, EPYC server processors and Vega/Navi gaming and data center GPUs could help, the firm added.

The Price Action

Notwithstanding the earnings-induced pullback, AMD shares have gained about 64 percent year-to-date. The stock was up 0.24 percent at $16.89 at the time of publication Tuesday. 

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