Advanced Micro Devices, Inc. (ticker: AMD) has been one of the hottest stocks in the market in recent years. However, since the launch of the company’s Ryzen desktop central processing unit in early March, AMD stock is now down more than 25 percent.
According to Wall Street analysts, AMD still has a long way to go to live up to market expectations, but investors shouldn’t confuse disappointing results with bad ones.
AMD shares initially plummeted more than 19 percent after the company reported an adjusted first-quarter loss of 4 cents per share on Monday. While earnings and revenue of $984 million were mostly in line with analyst expectations, the company’s second-quarter guidance came up short of what investors were hoping for in the Ryzen era. The company’s 33 percent gross profit margin guidance for the second quarter was a red flag to Goldman Sachs analyst Toshiya Hari.
Hari initiated a “sell” rating on AMD back on April 6, citing concerns about the stock’s steep valuation.
But while few analysts are stepping in to defend AMD’s weak guidance, some at least see a light at the end of the tunnel for AMD investors.
“We believe Ryzen is priced aggressively to spur demand, limiting [growth margin] leverage, at least initially,” Oppenheimer analyst Rick Schafer says. If his theory is correct, AMD may have some pricing leverage down the road as long as Ryzen continues to get glowing reviews from customers.
Schafer also says AMD’s Vega GPUs are a “wild card,” but that investors shouldn’t expect any impact until at least 2018.
Bernstein analyst Stacy Rasgon says AMD has very little margin of error after the stock’s meteoric rise in recent years. “The stock (after the strong run) likely needs perfection to continue the trajectory, and while last night’s results were not necessarily disastrous, they certainly weren’t perfect,” Ragson writes in a new research note.
Wells Fargo analyst David Wong says investors should appreciate AMD’s impressive revenue growth.
“With sales up 18 percent year [over] year in the March quarter and guidance for 12 percent growth in the June quarter, AMD is continuing…
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