Barclays Downgrades Advanced Micro Devices, Sees 'Little Evidence' Of Epyc Share Gains

Wayne Duggan

Tue, Jul 18, 2017, 8:33 AM

Heading into Q2 earnings season, one of the hottest stocks in the semiconductor space may be running out of steam.

On Tuesday, Barclay’s downgraded Advanced Micro Devices, Inc. (NASDAQ: AMD) from Equal-Weight to Underweight after the stock has surged 160 percent in the past year. In the downgrade note, analyst Blayne Curtis said AMD's stock is simply too expensive, and expectations for the company’s recently-launched Epyc server processor are too high given the quality of rival Intel Corporation (NASDAQ: INTC)’s new Purley offering.

“After seeing the launch of Purley and Epyc along with some third-party benchmarks, we believe the rubber is meeting the road and are unconvinced AMD products will gain enough traction to support the current valuation (45x forward P/E),” Curtis wrote.

Curtis added that he sees “little evidence” of Epyc share gains after conducting recent channel checks. Barclays also recently made a trip to China and noted “limited interest” overseas as well.

Even capturing 10 percent of Intel’s market share would be difficult with a superior product, but Curtis says there is little evidence Epyc is superior. He pointed out that latency is one critical shortcoming of Epyc.

“Because Epyc is 4 discrete Ryzen desktop chips combined with Infinity Fabric interconnect in a package, the chip underperforms in applications which burden the shared memory given the higher latency accessing cache and DRAM,” Curtis wrote.

He added that even if AMD eventually achieves annual earnings of 75 cents per share, which Barclays sees as unlikely, the stock would still be expensive at its current price.

Barclays has a $9 price target for AMD stock based on a 28x multiple on 2018 estimates EPS of 33 cents.

Image Credit: By Rico Shen, CC BY-SA 3.0, via Wikimedia Commons

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