The Ratings Game: AMD warning prompts analysts to revisit whether PC chip market has bottomed yet

by | Oct 7, 2022 | Stock Market

Wall Street analysts were in lockstep on Advanced Micro Devices Inc. Friday, agreeing that the chip maker’s forecast sales to PC customers were worse-than-expected, and that the bottom to 2022’s dismal chip market was still somewhere down there. AMD shares
AMD,
-13.87%
dropped 13.9% Friday to close at $58.44, while the S&P 500 index
SPX,
-2.80%
fell 2.8%, and the tech-heavy Nasdaq Composite Index
COMP,
-3.80%
dropped 3.8%. It was also the worst one-day percentage drop in AMD shares since March 12, 2020, the day after the World Health Organization declared COVID-19 a global pandemic, when shares closed down 14.6%. Late Thursday, AMD decided to reduce expectations now rather than Nov. 1, when the company is scheduled to report results.

In his note titled, “Let the ‘Buy the Confession’ Notes Begin.” Jefferies analyst Mark Lipacis, who has a buy rating and a $120 price target, called the general theme of Friday’s chip analyst notes: Worse-than-feared PC sales give analysts a better view of what is causing 2022’s chip glut and how it can clear, but not so good as to reliably pick a bottom, but AMD’s fundamentals are better than most either way. Lipacis said now that AMD is on level with the rest of the industry on how bad PC sales have been, he advises that now is the time to buy AMD, noting that the chip maker’s “higher-than-expected inventory levels based on mismatched and partial manufacturing kits.” Chip shares took an additional battering Friday as the U.S. Commerce Department imposed new restrictions on semiconductor technology sold to China, sending the PHLX Semiconductor Index
SOX,
-6.06%
down 6.1% for their third one-day 6% drop of the year. AMD now expects third-quarter revenue of about $5.6 billion, down from its previous $6.5 billion-to-$6.9 billion forecast, as AMD expects a 40% drop in PC vendor sales to about $1 billion, compared with Wall Street’s consensus estimate of $2.04 billion, and that figure stood out for analysts. The writing was on the wall in July when analysts were forecasting the worst drop in PC sales in more than a decade, following the largest number of shipments in a decade i …

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