AMD catches two upgrades on Wall Street that may signal a bottom in the chip industry's slump

Published Mon, Nov 14 20222:03 PM EST

Advanced Micro Devices (AMD) is getting some love Monday in the form of upgrades from UBS and Baird, bolstering our recent decision to halt trimming any more of the chip designer's shares. AMD shares rose 3% to start the week, riding a winning streak since last Thursday's 14% jump in the broader market's surge that day. However, AMD, like many of its peers, has been decimated on Wall Street, losing 48% in 2022. What UBS thinks UBS took its rating on AMD up to buy from neutral and raised its price target to $95 per share from $75, arguing the collapsing semiconductor cycle may be reaching a bottom. As evidence, analysts there pointed to shipments of central processing units (CPUs), which run personal computers, tracking "far below even the most bearish market forecasts for PCs in 2023." That may not sound like encouraging news — but as members will recall, AMD and fellow Club holding Nvidia (NVDA) have been shipping chips to customers at a significantly reduced rate in order to help flush out bloated channel inventories. In fact, UBS analysts suggest it may even be possible that shipments fell to near zero in September. As a result, looking out to 2024, the analysts wouldn't be surprised if PC shrinks to less than 20% of 2024 operating profits, down from about 50% in 2021, a factor they believe — and we agree — could provide for a re-expansion of the valuation multiple. Another sign of a possible bottom in the cycle is that we historically tend to see it happen after six straight months of downward estimate revisions. UBS noted that November will mark the sixth month. As chip stocks took a leg down late in the summer and into the fall, we last trimmed Qualcomm (QCOM) on Oct. 10, AMD on Oct.17 , and Nvidia on Oct. 31 — all of which carry our 2 rating . We also exited Marvell Technology (MRVL) on Nov. 3 . Looking at where investor focus should be coming out of a cycle bottom, the analysts broke the industry down into five subsectors: (1) memory, (2) compute, (3) networking/infrastructure/communications, (4) analog, and (5) semi capital equipment. For a closer look, here's our Club guide to how the semiconductor