Advanced Micro Devices is a Bright Spot for Chip Stocks

Analysts are confident that Advanced Micro Devices (AMD) will be one of the few semiconductor companies to grow this year, even with a projected downturn in the chip sector.  AMD will report its Q4 earnings results later today, and the market is expecting the company to report rising sales and earnings this year.  The average estimates of analysts are for the share price of AMD to grow 19% over the next 12 months, stronger than peers such as Intel (INTC) and Nvidia (NVDA).

AMD has steadily been chipping away at Intel’s hold on the market for processors used in server computers. Also, AMD may see future sales increases from Meta Platforms (META) when Meta boosts spending on chips used to power its metaverse project.  Synovus Trust, which owns stakes in both companies, said, “AMD is still posting reasonably strong growth in its key data-center unit while Intel is sputtering.”

After more than two decades, shares of AMD have caught up to Intel.  At the peak of the internet stock bubble in 2000, Intel was the industry leader with a market value of $500 billion, while AMD was well behind with a market value of $11.7 billion.  The companies today are roughly the same size at about $116 billion.  According to Mercury Research, Intel still dominates the market for processors used in servers, with a share of more than 70%. However, in recent years, more tech companies have been developing in-house chips to replace Intel processors.

Intel has been slow to bring new products to market in recent years, allowing AMD to lure away customers, and now Intel is under pressure from a slowdown in personal computer sales.  Last week, Intel forecasted one of the worst quarters in its history and announced job cuts and a slowdown in spending on new plants in an effort to save as much as $10 billion.  Intel is also forecasting double-digit declines in earnings and revenue this year.  At the same time, AMD is expected to report a 3% increase in EPS this year and a 6% increase in revenue based on the average analyst forecast.

Earnings estimates for chip companies this year have been cut sharply.  According to Bloomberg Intelligence, earnings for chip companies are expected to fall 21% this year.  At the end of October, they were expected to drop only 9.1%.  Barclays PLC upgraded AMD to overweight last week, saying the company’s platforms should drive further share gains versus Intel this year.  However, Miller Tabak said, “if AMD’s guidance is negative despite the fact that they’re taking market share from Intel, it will be negative as it tells us that the entire industry is under even more pressure than it was in the second half of last year.”

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