Shares of chip giant Advanced Micro Devices (NASDAQ:AMD) and its semiconductor peers have been clobbered this year due to macro challenges, a decline in personal computer demand, and the Biden administration’s recently imposed restrictions on semiconductor exports to China. While most analysts are still bullish on AMD’s long-term prospects, near-term headwinds are too prominent to ignore.
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AMD’s Numbers Reflect Near-Term Pressure
AMD spooked its investors earlier this month when it announced its preliminary third-quarter numbers. The company expects its Q3 revenue to come in at $5.6 billion, reflecting 29% year-over-year growth. This growth rate is significantly lower than the nearly 55% growth estimate issued by the company in August.
AMD blamed its decelerated Q3 growth rate on lower processor shipments in its Client segment due to weaker-than-projected demand in the PC market and “significant inventory correction actions across the PC supply chain.”
Moreover, the company now anticipates an adjusted gross margin of about 50% compared to its previous estimate of nearly 54% due to a fall in shipments in the Client segment and lower prices.
On the positive side, AMD reassured investors about significant year-over-year growth in the Data Center, Gaming, and Embedded segments, in line with the company’s estimates.
Is Advanced Micro Devices Stock a Buy?
KeyBanc Capital Markets analyst John Vinh slashed his price target for AMD stock to $100 from $130 to account for the dismal Q3 preliminary update. However, Vinh reiterated a Buy rating keeping in mind the company’s long-term prospects. Vinh stated, “While these results are disappointing, we remain Overweight AMD, as we still anticipate outsized growth long term, led by secular growth and share gains in data center.”
This week, Deutsche Bank analyst Ross Seymore cut the price target to $70 from $80 and maintained a Hold rating on AMD stock. Heading into Q3 results, Seymore noted that concerns over fundamental deterioration are “leading to very bearish investor positioning.”
Overall, the Street has a Moderate Buy consensus rating based on 20 Buys, seven Holds, and one Sell. The average AMD stock price target of $97.50 implies 69% upside potential. Shares have declined nearly 60% so far this year.
Conclusion
AMD’s long-term prospects remain bright, given the demand for its chips in data centers and AI amid rapid digitization. However, many analysts slashed the price target for AMD stock following the Q3 update, reflecting demand concerns over the near term. Overall, Wall Street seems cautiously optimistic about AMD stock due to a challenging business environment.
