AMD Downgraded by Northland on Sluggish Data Center Demand in the Second Half of 2020 and the Possibility of Intel Adopting TSMC as a CPU Partner

This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

AMD (NASDAQ:AMD) has received quite a boost following Intel’s epic stumble in the 7nm arena. Despite winning laurels from analysts and an incessant rise in the stock price, the company has received a rare downgrade today from the Northland Capital Markets, a provider of equity research and investment banking services.

To wit, Northland analyst, Gus Richard, downgraded AMD today from an ‘Outperform’ to a ‘Market Perform’ designation. The analyst also pegged a stock price target of $80 for AMD, corresponding to a 5.5 percent downside potential relative to the current pre-market price level of $84.40.

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Richard cited a number of potential risks that necessitated the downgrading of AMD’s outlook. These include a likely slowdown in the demand for semiconductors from data centers in the second half of 2020 and ARM’s growing penetration in the x86 processor segment. Crucially, however, the analyst has also cited the possibility of Intel (NASDAQ:INTC) turning toward a partnership with TSMC in the production of its 7nm processors as a major contributing factor for today’s subdued prognostication regarding AMD.

Bear in mind that Intel had announced as a part of its Q2 2020 earnings that “the company's 7nm-based CPU product timing is shifting approximately six months relative to prior expectations.” Thereafter, on the 27th of July, DigiTimes cited sources that indicated the possibility of Intel turning toward TSMC in order to overcome issues with its 7nm yield. It should be noted that Intel’s 7nm node is equivalent to TSMC’s 5nm node in terms of the transistor density and yield. If this development bears fruit, Intel would be able to effectively sidestep its 7nm-related issues, thereby, precluding the potential windfall that AMD is expected to generate.

Interestingly, Northland is currently somewhat of a loner when it comes to its more somber AMD outlook. As an illustration, Cowen Inc. (NASDAQ:COWN) hiked the company’s stock price target to $100 last week, highlighting AMD’s "messages of roadmap consistency, execution dependability and much closer collaboration with key customers” that emerged during its talks with Lisa Su, the CEO of AMD.

Even if Intel is able to overcome its 7nm node shortcomings, AMD is determined to snatch a greater segment of the market share by launching new products. As an illustration, the company is currently working toward releasing its much-anticipated Big Navi (RDNA 2) GPU, codenamed Navi 21, by October 2020. AMD believes that the new GPU will bring the same level of disruption in the 4K gaming sphere as that heralded by its Zen architecture in the CPU sphere. In addition, it has already started working on Navi 31 and Navi 41 GPUs.

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