In less than a week from today, on Tuesday, May 2, 2023, semiconductors giant Advanced Micro Devices (NASDAQ:AMD) is scheduled to report its Q1 2023 financial results. A lot of investors seem nervous about that; since the start of April, AMD stock is down 13%.
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But do you know who is not nervous about AMD’s earnings report? Stifel analyst Ruben Roy.
In a recent research note, Roy reiterated his “buy” rating on AMD stock, along with a $98 price target — that coincidentally, would take the stock right back up to where it started the month of April. (To view Roy’s track record, click here)
The analyst isn’t 100% bullish on AMD in the near term, warning of “headwinds” that, while perhaps not felt overly much in Q1, will make themselves known by Q2. Longer term, however, Roy believes that AMD remains a good bet to outperform the stock market as it continues to gobble up market share over time.
More on that in a moment. But first, the near-term picture:
AMD has guided investors to expect about a 10% year over year revenue decline in Q1 — about $5.3 billion — and Roy is on board with that forecast. Earnings-wise, the picture is quite a bit uglier, with consensus forecasts centering on a 50% decline in profits to $0.56 per share, pro forma, and again, Roy agrees with that number.
Curiously, where Roy differs with his peer stock analysts is on Q2, where most of Wall Street foresees sequential improvement in both revenues and profits, to $5.5 billion and $0.63 per share, respectively. Predicting the global semiconductors market will see a “less robust” recovery, however, Roy is forecasting revenues below $5.4 billion (an 18% year over year decline) and profits of just $0.60 per share (down 43% year over year).
Indeed, Roy sees AMD underperforming expectations pretty much all year long this year. Whereas the Street has AMD reporting full year revenues of $23.6 billion for 2023, Roy thinks $23.4 billion (a 1% decline from 2022) is a bit closer to the truth. And where the Street has AMD earning $3.07, pro forma, this year, Roy is somewhat more conservative, predicting an even $3 per share — down 15%.
What’s more, even when things start looking up again for semiconductors, and for AMD, Roy sees the rebound taking form slower than other analysts are counting on. In 2024, his prediction of 17% revenue growth (versus 2023) is nearly a full percentage point slower than the consensus opinion. He also thinks 2024 earnings of $4.10 will lag the consensus number of $4.30.
Maybe no one will notice if they do, though. A rebound to even $4.10 would still represent robust 36% year over year growth.
Ultimately, whether Roy is proven right or wrong in the short and medium terms, his long-term view remains intact. At a share price 20 times what he expects the stock to earn in 2024, AMD would look quite attractively priced if it ends up growing earnings 36% that year. Of course, that still leaves perhaps 20 months of unappetizing earnings that investors will need to live through between now and then.
But if all goes as planned, the long-term rewards could be worth the short-to-medium-term pain.
Let’s turn our attention now to the rest of the Street, where based on 19 Buys and 5 Holds, AMD currently carries a Strong Buy consensus rating. The average price target comes in at $100.38 and indicates a 17.5% upside potential for the year ahead. (See AMD stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
