Wall Street analysts are conflicted on AMD after its earnings

Published Wed, Aug 2 20236:33 AM EDT

AMD may be nearing the end of its rally, according to some Wall Street analysts. The semiconductor manufacturer's shares have surged 81.5% year to date amid the AI boom. However, despite the company's second-quarter earnings announcement on Monday topping analyst estimates, the global PC market slump has dampened the company's sales forecasts. Following the earnings report, Bank of America reiterated its neutral rating on the stock while lifting its price target by just $2 to $132. The new price target implies 12.2% upside from where shares closed Tuesday. "AI optionality [is] offset by growth deceleration," analyst Vivek Arya said in a Tuesday note. He added that consensus is "too fixated" on the company's AI accelerator opportunity — which will likely account for less than 5% of its 2024 sales. JPMorgan analyst Harlan Sur also maintained his neutral rating on shares. "AMD is executing well toward its target financial model, but we remain Neutral as shares appear to be nearly fully valued," Sur wrote in a Tuesday note. Sur increased his price target to $130 from $92, implying 10.5% further gains. Deutsche Bank, meanwhile, expects a minor pullback in the share price from current levels. Although the firm raised its price target to $115 from $110, it still remains 2.2% below Tuesday's close. Despite the company's in-line quarterly results, headwinds in the Data Center servers and gaming segment will weigh upon earnings, according to analyst Ross Seymore. To be sure, several other analysts have a more bullish outlook on AMD. "While bears on the stock are likely to suggest that the implied 4Q23 guide represents a high bar for AMD, we expect the market to look through any near-term volatility and instead focus on what is to come in 2024 and beyond given a) bottoming market fundamentals across the traditional/non-AI server and PC markets, b) a re-acceleration in server CPU share gains in 2H23, c) signs of early success in penetrating the data center accelerator market, and d) expanding gross and operating margins," Goldman Sachs analyst Toshiya Hari said in a Tuesday note. Goldman Sachs reiterated its buy rating on the stock with a $137 price target, which indicates shares gaining 16.5% from Tuesday's close price. Morgan Stanley also kept its overweight rating on the stock, noting AMD's "unique position" amid the AI boom. The company has "a strong AI opportunity that doesn't really begin in earnest until 2024 — so 2023 has had all of the downside from traditional server budgets being squeezed, without the upside from AI," according to analyst Joseph Moore in a note. Moore has a price target of $138 on shares, which implies shares rallying more than 17% from their current levels. Citi analyst Christopher Danely upgraded shares to buy from neutral, while increasing his price target to $136 from $120. "We were wrong — on two fronts," Danely wrote in a Tuesday note. "We had thought AMD's AI products (MI300) would be margin dilutive, but the company stated it should be margin accretive. We also thought investors would eventually tire of the expensive valuation of AMD stock and we were wrong on that count as well. AMD shares gained 1.2% Wednesday during premarket trading. AMD YTD mountain AMD in 2023 —CNBC's Michael Bloom contributed to this report.