AMD Share Price Target Slashed To Below $100 By Optimistic Morgan Stanley

Ramish Zafar
AMD chief and board chair Dr. Lisa Su. Image: Lisa Su/Twitter

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

Chipmaker Advanced Micro Devices, Inc (AMD)'s share price was downgraded by the investment bank Morgan Stanley on Friday. AMD has been the darling of the financial world of late, as the company has been able to post back to back quarterly revenue growth at a time when its larger rivals are dealing with significant macroeconomic headwinds. However, doing so again might prove to be difficult in the future believe analysts at Morgan Stanley, as they fear that a correction in the semiconductor space will prove to be painful for the technology firms. Subsequently, the bank reduced AMD's share price target to $95 from $102.

AMD Estimates Still Higher Than What They Were At Start Of The Year Assures Morgan Stanley

The note, which was focused on the broader semiconductor sector, saw chip stocks come tumbling down in a market that is already shaken by the strong interest rate hikes underway. Its theme was a broader correction in the semiconductor sector, which has been facing a significant misbalance between demand and supply. The turmoil began during the coronavirus pandemic as consumer demand for electronics grew and companies were caught off guard.

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As is the case in such scenarios, the companies naturally increased their orders at the chipmakers, which then increased production. However, by the time the products made it to the firms' inventories, demand had started to abate and concerns grew about whether the levels of inventory currently in stock will be absorbed by the market.

Talks of a correction started to surface late last year, and now, Morgan Stanley believes that while some industry segments are already witnessing a correction, the broader industry will not feel its effects until 2023. They add that demand problems are surfacing in the personal computing and console gaming market, but some Asian countries are still seeing negative demand.

TSMC's chief executive officer Dr. C.C. Wei has assured industry watchers several times that demand has not dropped for his company's products. Image: TSMC

Narrowing down on AMD, Morgan Stanley notes, as quoted by The Fly, that:

Morgan Stanley analyst Joseph Moore lowered the firm's price target on AMD (AMD) to $95 from $102 and keeps an Overweight rating on the shares. He continues to see a broad-based, pervasive inventory correction hitting the semiconductor industry, but one that is taking a long-time to play out, so Moore thinks this quarter should "again be somewhat mixed" for the group. He is worried about AMD numbers, and has trimmed his estimates despite already being below consensus. However, valuation is "undemanding on our new numbers" and structurally the delay in Intel's (INTC) Sapphire Rapids - versus AMD's Genoa being on schedule - should continue to drive strong share gains, Moore tells investors.

The Morgan Stanley analysts remain confident in the demand for AMD's products, sharing that the company's Genoa product lineup is on schedule and will allow it to continue gaining market share from the larger Intel Corporation.

However, this did not stop the analysts from reducing both AMD's share price target and earnings per share (EPS) estimates. The share price target was cut to $95 from $102, and the EPS for the ongoing fiscal year 2022 by 5% to $4.02 per share from $4.24 per share. For the fiscal year 2023, the estimates were reduced by roughly 7% to $4.40 per share from $4.72 per share.

AMD's shares have faced a bloodbath on the stock market this year, due to no fault of the company. While year to date its share price has dropped by 55%, the share price of larger rivals such as Intel Corporation and NVIDIA Corporation has dropped by 48% and 59%, respectively. Both have suffered from a reduction in personal computing and graphics processing unit demand, with NVIDIA's latest quarterly results obliterated by the recent crash in cryptocurrency markets.

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