AMD (AMD) Stock Slips as Piper Sandler Downgrades to Hold on Valuation, Says Xilinx Deal Could Add More Fatigue Than Benefit in Near Term

January 20, 2022 7:31 AM EST
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Piper Sandler analyst Harsh Kumar downgraded shares of AMD (NASDAQ: AMD) to Neutral from Overweight and lowered the price target to $130.00 per share from the prior $140.00.

Kumar doesn’t expect AMD to miss near-term estimates, particularly in the next two years. His downgrade call is more forward-looking, based on the three key reasons:

1) PC Market Slowdown - “We do see a combination of slower growth and a slowing PC environment burdening the stock. In our eyes, this represents a high multiple set-up coupled with a slowdown in growth. We do believe estimates in the near-term are beatable, but the slower growth would warrant a lower multiple.”

2) Xilinx - “When including full years of Xilinx, the combined company growth rate for 2022 is forecasted to be between 21% and 22%. While we acknowledge that profitability metrics will likely improve, we point out the lower growth rate for the combined company due to the slower growth from Xilinx.”

3) PC Concerns in 2022 - “We note the most recent Gartner PC update pointed to slowing PC shipments globally, with worldwide shipments down ~5% year-over-year in the fourth quarter of 2021. We expect 2022 growth to be down from the nearly 10% growth seen in 2021. Even with AMD seeing strong enterprise design win momentum, we think the consumer PC business is likely to show signs of fatigue in 2022.”

Continuing on the Xilinx deal, Kumar notes that "the deal may prove to lead to more fatigue in the near term than benefit given the lower growth profile and limited initial cost cuts."

Finally, the analyst is also concerned about valuation, which is “relatively high.” AMD stock is trading at 40.0x Piper’s CY22 EPS estimate of $3.21, with the group trading at 31.7x.

All in all, Kumar sees the risk of a lower growth rate for AMD, which pushed him to downgrade to Neutral.

AMD stock price is down 2% in pre-open Thursday.

By Senad Karaahmetovic | [email protected]

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