We Rate AMD At Accumulate Following Q4 Earnings, Long-Term Price Target $210 (NASDAQ:AMD)

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Counter-Intel

We published a note on Intel Corporation (INTC) here on Seeking Alpha recently. We rate the stock at Accumulate, and our logic was simple. INTC is a beaten down American hero and if the re-shoring of semiconductor fabrication back to the US is to succeed, it needs Intel’s fabrication to succeed. Which means likely a wall of capex for a long time in order to try to recapture some of what was lost when their 10nm process hit the skids. INTC stock is on the floor and it looks like it could pick itself up – ahead of any real-world improvements, as usual. You can read that note here. If you want the counter-argument check the comments, which predominantly give you the standard narrative about it being All Over For Intel Forever etc., etc.

So – we believe Intel can be accumulated in expectation of politics pushing the stock higher.

AMD? AMD has a more easily believed bull case which is based on better products, better financial fundamentals and so forth. And we are bullish on AMD. It’s not an either-or for us, for a number of reasons. One, religion and stocks do not mix. Why pick only one deity when you can spread your bets? Two, stocks rise and fall for many reasons. Should Intel regain its manufacturing mojo we don’t see that as negative for AMD. Indeed if we see a healthy end-device market and a less restrictive monetary policy then both names will likely rise for their own reasons. (Or perhaps, whisper it, only monetary policy really matters in the end).

Now, if you are an old person like those wandering the halls here at Cestrian Towers, AMD in your mind is an also-ran, a low cost CPU provider that meant you could buy that laptop a little cheaper albeit it would give you the blue screen of death more often. If this is your perception of AMD, give it up, grandpa, and move on.

But since CEO Lisa Su became CEO in 2014, AMD has become a technical powerhouse and seen major gains in its market share in CPU, GPU and now, via the acquisition of Xilinx, FPGA. Right now if you want a high compute performance machine, you buy an AMD-powered box, not an Intel Inside box.

That’s the set of inputs.

And this has been the output.

We are old folks here in another regard also. Cashflow. We spend a lot of time on cashflow analysis. We don’t really think that EPS is a thing worth bothering with, not least because it is so easily manipulated whilst still being able to pass audit muster.

Unfortunately AMD’s earnings releases are rather unsatisfactory from a cashflow perspective; they provide summary cashflow data, not the detailed cashflow statement normally included in earnings prints. Why this is, we know not, but we have to wait for the 10-K to be published before we can complete our usual fundamentals table. That said, based on the summary data provided, it won’t change our outlook.

Here’s the numbers, absent anything dependent upon the cashflow statement.

Valuation stands as follows:

And now for the chart. Here we assume that the 2022 lows represent a larger-degree Wave 2 low. In case we’re wrong we place the stop zone just a little below that level. If correct, AMD could run to the 100% extension of Wave 1 for a target of $210 or so. That sounds insane right now but semiconductor stocks can do this in a market recovery phase – they often lead the market up and the volatility that helps shorts on the way down drives longs on the way up. You can open a full page version, here.

So – accumulate rating; stop zone below the recent lows; should the stock in fact run up as we expect there will be many opportunities to take gains, raise stops, place trailing stops etc. in order to manage risk.

Cestrian Capital Research, Inc – 1 February 2023.