Analysts Lower Targets On AMD Despite Earnings Surpassing Expectations

In a twist of fate contrasting its financial triumph, Advanced Micro Devices shares (NASDAQ: AMD) experienced a stumble in the market, dropping 5.45% since Q1 earnings report. While the company surpassing analysts' revenue and earnings predictions should have been cause for celebration, a gloomy projection for the current quarter sent the shares tumbling down by 8.3% on May 1 and analysts have been quick to weigh in.

The decline in share price reflects ongoing concerns, as AMD's stock has now fallen by 11.37% over the past month but ultimately, up 34.75% over the past six months, closing at $150.58 per share during the previous trading session.

Peering into AMD's business segments reveals a mixed performance landscape. The Data Center segment boasted an enviable 80% year-over-year revenue increase, while the Client segment celebrated an 85% uptick. Unfortunately, this was not a universal story of triumph, as both the Gaming segment and the Embedded segment wrestled with declines in revenue.

Analyst Sentiments

Broadly speaking, each of the analysts to lower targets in the past few days has done so through gritted teeth, with all retaining Buy or Overweight ratings on the stock, but revising down their previously even loftier expectations. The lowest target of the three firms represents an upside on AMD stock of more than 16% above the current price, so all negative this is not.

• Benchmark have lowered the firm's price target on AMD to $200 from $245. The company keeps a Buy rating on the shares. Cody Acree, Benchmark's analyst has stated though AMD's March quarter earnings have just met expectations and provided a “slightly soft” outlook for the June quarter, the firm believes the consensus of the market reducing the company's share price down as much as 8.5% intra-day was “based on a superficial view of AMD's industry position and largely misses the most important takeaways” from the company's report.

• Piper Sandler lowered the firm's price target on AMD to $175 from $195 and have kept an Overweight rating on the shares. Piper Sandler has noted that AMD have reported revenue as expected from guidance. Piper have expressed the important business departments, namely MI300 and the server business, surpassed expectations and continue to impress. The gaming and embedded businesses is doing well says the firm. Piper has expressed that it is enthusiastic about AMD's core businesses that investors and market watchers are also keenly watching for movement in non-core business activities.

• Citi analyst Christopher Danely lowered the firm's price target on AMD to $176 from $192 and keeps a Buy rating on the shares. Citi have stated that AMD have reported “decent” results and guided above consensus. The positive results have been driven by the MI300 ramp, the analyst tells investors in a research note. Citi have lowered their estimates due to AMD's gaming segments, but they continue to expect a positive outlook over the summer months.

Looking Ahead

AMD has set its revenue targets at approximately $5.70 billion for the fiscal 2024 second quarter with aspirations for a non-GAAP gross margin of around 53%. This guidance, cautious in its tone, might have played a pivotal role in unsettling investors.

Market valuation measurements offer additional insight into the skepticism that shadows AMD's stock. The company's forward valuation metrics, encompassing the forward Price/Sales (P/S) ratio, forward Enterprise Value/Sales (EV/Sales) ratio, and forward Price/Earnings (P/E) ratio, loom above industry averages, suggesting a premium that investors are potentially wary of.

Financial scrutiny deepens noting AMD's squeezed profitability when stacked against industry benchmarks. The company lags with a lower EBIT margin, asset turnover ratio, Return on Capital Employed (ROCE), and Return on Total Capital (ROTC), signalling concerns that resonate with investors fixated on financial health and efficiency.