AMD shares rise after Stifel predicts higher profitability for chipmaker

by EquityTom

Source CNBC

AMD’s new chips will boost the company’s profit margin in its third quarter, according to Stifel.

The firm raised its price target for AMD’s stock to $21 from $17 and reiterated its buy rating for the company’s shares. The new price target is 29 percent higher than Friday’s closing price.

On Thursday IDC said preliminary results showed shipments of traditional desktop, notebook and workstation PCs rose 2.7 percent in the second quarter of 2018 compared to the same period last year, the strongest growth rate in more than six years.

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“Given the many positive PC industry data points for 2Q18, we believe shipments for AMD’s Zen-based PC CPU line up tracked in-line to slightly better than management’s guidance,” analyst Kevin Cassidy said in a note to clients Sunday. “We continue recommending the AMD shares as a higher percentage of its revenue transitions to the newer, higher margin Zen-based CPUs.”

AMD shares rose 3.7 percent Monday after the report. Its stock is up 58 percent so far this year through Friday versus the S&P 500’s 5 percent gain.

The analyst estimates AMD’s third-quarter gross profit margin will rise to 37.7 percent from 37 percent in the second quarter, citing the positive sales trends in the PC market.

“Additional strength was driven by business volume, premium notebooks, and gaming PCs, which benefitted from moderating graphic card prices,” he said. “We expect AMD to benefit from the stronger than expected results, especially given the trends for enterprise, gaming, and high-end notebooks, all markets in which AMD has improved its competitive position through its Ryzen processors.”

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