AMD’s strong recovery could cool amid potential ‘fatigue’ in PC market, downgrade analyst says


After a strong rally in recent years, shares of Advanced Micro Devices Inc. may face tougher times ahead amid signs of fundamental “fatigue.”

Piper Sandler analyst Harsh Kumar downgraded AMD stock from AMD,
-1.08%
to an overweight neutral form on Thursday, writing that a potential slowdown in the PC market could weigh on momentum in the year ahead. AMD shares are down 0.9% on Thursday.

While Kumar does not anticipate “a near-term fundamental breakdown” or earnings losses over the next two quarters, he does predict that some sector dynamics may become less supportive.

Researcher Gartner pointed to a 5% year-over-year drop in global PC shipments during the fourth quarter, and while 2021 was a strong year overall for the category, Kumar believes growth will be in decline in 2022 as the consumer PC market may show “signs of fatigue. »

“[U]Ultimately, we are seeing a combination of growth and a slowing PC environment weighing on the stock,” he said in his note to clients. “To us, this represents a high multiple setup coupled with slower growth.”

AMD’s stock has lost about 12% so far this year, after climbing 57% in 2021 and 100% in 2020. The stock has risen 13x in the past four calendar years.

See also: AMD shows off $200 graphics card and new chips at CES presentation

Kumar is also concerned about AMD’s pending deal for Xilinx Inc. XLNX,
+1.49%
could mean for the finances and the perception of the company. He predicts AMD could grow organic revenue by around 24% in 2022 after seeing an estimated 65% increase in 2021, but taking into account the slower growth estimates analysts have for Xilinx, Kumar predicts a of full-year growth for AMD combined. -Xilinx from 21% to 22%.

Kumar sees financial benefits in the deal, including the fact that it could boost AMD’s overall operating margins. But he also thinks the combination could “only be accretive by pennies in the first full year, which is below initial expectations when the deal was announced.”

As a result, the merger could “cause more short-term fatigue than benefit given the lower growth profile and limited initial cost reductions,” he wrote.

AMD expected the deal with Xilinx to close by the end of 2021, but it has yet to receive all required regulatory approvals and now expects the transaction to close in the first quarter of 2022. .

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Kumar also downgraded its rating on NXP Semiconductors NV NXPI shares,
+0.17%

VNX,
-1.99%
to neutral from overweight on Thursday due to concerns about the automotive sector.

“We believe the pace of orders and high prices could be challenged as supply normalizes in the second half of the 2022 calendar,” he wrote.

About half of NXP’s revenue is related to the automotive market, he continued, making the stock “the most at risk” of this trend among the names it covers.

Shares of NXP are down 0.5% in Thursday trading. They are up around 6.3% in the last three months and AMD stocks are up 9.4%, like the S&P 500 SPX,
+1.39%
gained 1.3%.

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