AMD's Road To Recovery: Analyst Points To Bottom In March, Market Share Growth And Server Dominance Ahead

Susquehanna analyst Christopher Rolland maintains Advanced Micro Devices Inc AMD with a Positive rating, raising the price target from $112 to $115.

Ronald generally expects in-line 1Q results but is more uncertain about the guide. 

For the Client, PC ODM (original design manufacturer) builds have significantly improved for February and March, likely marking the bottom for this downcycle. 

For 2Q, Street expectations of +10% sequential Client growth may be a tad optimistic, as the CPU inventory overhang was significant and just ending now. 

On market share, his data suggests that AMD share normalized in laptops and desktops during 1Q following Intel Corp INTC order pull-ins ahead of their price hikes into 4Q, a positive. 

For Data Center, he expects a slower Genoa ramp (given it is a new platform) and delays on 2 DIMM. 

For Embedded/Xilinx, he remains cautious on 2Q, evidenced by the slowdown in the business. 

Read-throughs from Lumentum Holdings Inc's LITE negative pre-announcement suggest negative FPGA results as networking and telco appear to be softening. 

For Gaming, he expects revenue to grow throughout the year as the inventory burn/ETH headwind slows and pricing and demand appear to have stabilized. 

Consoles demand appears mixed. While he expects Gaming may still decline for the year, he is more optimistic into 2024. 

For gross margins, he thinks Xilinx's weakness could weigh on the mix, given product gross margins of ~70%. 

He hopes AMD will guide the entire year, with revenue coming in down slightly to $23.3 billion (chance of flat), gross margins perhaps >50%, and operating expenditure ~27.5% (the high 20s). 

The company remains optimistic about a second-half recovery, but so is the Street. 

Summing up, he believes March will mark the bottom for AMD but note small risks for the 2Q guide. 

He expects AMD share gains in PC to continue (albeit slower than the last few years) and to accelerate in server, as Intel has little hope of surpassing Taiwan Semiconductor Manufacturing Company Ltd's TSM process technology lead before 2026 (if ever). Additionally, he believes Xilinx offers the company a highly strategic and profitable new revenue source, further boosting margins on top of the shifting mix toward servers.

Price Action: AMD shares traded lower by 0.90% at $87.64 on the last check Monday.

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