Why AMD's Coronavirus Impact Could Be Worse Than Intel, Nvidia

Why AMD's Coronavirus Impact Could Be Worse Than Intel, Nvidia

Advanced Micro Devices, Inc. AMD shares are trading at a record high — but a near-to-medium term risk is lurking ahead that could pose a threat to the stock's strong performance. 

AMD's Low-End Focus Exposed To COVID-19 Risks

The outbreak of the coronavirus in China and the ensuing supply chain disruptions could hurt AMD more than peers Intel Corporation INTC and NVIDIA Corporation NVDA, Eric Ross, chief investment strategist at Cascend Securities, said in a note. 

The impact will be felt in the March quarter and will likely extend into the June quarter as well, the analyst said. 

About 78% of AMD's revenue comes from computers and graphics, and low-end notebook board makers as well as low-end graphics makers in China are not ramping production meaningfully after the Lunar New Year, Ross said.

Given AMD's dominance in the low end of the market, revenue could be impacted by disruptions in the low-end notebook board and graphics card supply chain, he said. 

Manufacturing of about 90% of notebook motherboards for consumer models takes place in China, Ross said. 

Low-end PCs and low-end gaming — including DIY gaming PCs — are real markets for AMD, and these core markets are witnessing a slowdown in China in the aftermath of the virus outbreak, the analyst said. 

Cascend expects the lower unit refresh figures to continue into the June quarter. 

Nvidia, Intel Better Protected?

Nvidia, meanwhile, could see a slightly higher impact to revenues than the $100-million impact for which it guided, Ross said. 

The weaker low-end notebook and weaker DIY markets are slight negatives for Nvidia, although less negative relative to AMD, the analyst said. 

Data center and 5G demand in China seems to be fine, he said. 

"Actually online ordering is up strongly in China which could drive more data center demand." 

Cascend said it likes Nvidia as one of the fastest-growing suppliers into the hyperscale data center.

Intel's focus on the high end makes its more immune to the COVID-19-induced slowdown, Ross said.

The analyst expects 5G to drive substantial data center demand starting in the second half of 2020.

Cascend reiterated a Buy rating and $330 price target on Nvidia, along with a Buy rating and $75 price target on Intel.

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