Goldman analyst who nailed the AMD earnings plunge sees more downside for chipmaker

  • Goldman Sachs believes AMD is still "priced for perfection" and recommends investors avoid the stock.
  • The firm reiterates its sell rating on the company and lowers its price target to $10.60 from $11.

Wall Street firms rarely come out with sell ratings on the hottest performing stocks. It's even more infrequent for an analyst to get the bearish call right. Goldman's chip analyst Toshiya Hari did both.

Advanced Micro Devices shares opened down 14 percent at Tuesday's market open, a day after its guidance projected weaker-than-expected profits.

Hari on Tuesday reiterated his sell rating on AMD, citing the company's high valuation and aggressive expectations for its new products. On April 6, he initiated on the chip firm with a bearish rating and has one of only two sell ratings on the company out of 27 analysts, according to FactSet.

Since Hari initiated his sell rating, AMD shares are down more than 15 percent through Tuesday's market open.

"AMD reported an in-line 1Q op loss of $0.04 per share and failed to exhibit the 2Q upside the bulls were anticipating," he wrote in a note to clients Tuesday. "We believe the GM [gross profit margin] guide, in particular, was a disappointment as expectations, founded on the launch of Ryzen (desktop CPU) in March, were high into the print."

The analyst said AMD shares are still "priced for perfection" at 33 times his 2019 estimated earnings per share, and he "recommends investors stay cautious." He reduced his 12-month price target on the company to $10.60 from $11, representing 22 percent downside from Monday's close.

"AMD stock remains a 'show me' story as the market has, in our view, pre-traded the expected improvement in market share, GMs and ultimately EPS," he wrote.

AMD was one of the market's best performing stocks, with its shares up 20 percent this year through Monday compared with the S&P 500's 7 percent return. The stock is also up 264 percent in the past 12 months versus the market's 15 percent return.

The company's 52-week high roughly coincided with the March 2 launch of its new Ryzen line of desktop processors, which disappointed some gamers.

— CNBC's Michael Bloom contributed to this story.