AMD Stock Dips. Why Analysts See It as a Buying Opportunity.

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An AMD central processing unit for a desktop PC.

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Wall Street is telling investors to buy Advanced Micro Devices shares any time they fall. Analysts believe the chip maker’s second-quarter financial results show increasing long-term value despite the current difficulties in the personal-computer market.

On Tuesday, AMD (ticker: AMD ) reported better-than-expected earnings, but forecast slightly less revenue than analysts estimated for the September quarter, citing rapidly deteriorating demand for computers. On a conference call to discuss the earnings, management reduced its forecast for sales across the PC industry, saying it now expects the market to shrink by a percentage in the “mid teens” percent this year, versus its prior estimate of a “high- single digit” decline.

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Rosenblatt analyst Han Mosesmann reiterated a Buy rating for AMD stock with a target of $200 for the price, a call that implies the shares could double. AMD shares fell 1.5% to $97.79 in early trading Wednesday.

“We like the setup going forward,” he wrote. “On potential weakness on macro-PC issues today we would back up the truck as a planetary alignment never seen in Silicon Valley is approaching the x86 world,” pointing to the possibility that AMD could gain market share from Intel ( INTC ) with superior products . Even Intel has said it is likely to lose share for high-end server chips.

Both AMD and Intel use the x86 chip architecture in making the processors that act as the main computing brains for PCs and servers.

Bernstein analyst Stacy Rasgon is also confident in AMD’s ability to take significant share from its main rival. He reaffirmed his Outperform rating and $135 price target for the company.

“AMD is weathering a PC market in apparent free fall significantly better than their larger competitor did last week, and in that light we don’t view outlook here as hugely negative,” he wrote. “The long term story still looks really good, with a wide-open window on the back of Intel’s continued roadmap delays and pushouts and solid market exposure.”

There was clear evidence in the June quarter of a large shift in market share between the two competitors in the market for high-end server chips. AMD’s second-quarter revenue from its data-center segment grew 83% from a year earlier, while Intel last week reported a 16% sales drop for its data-center server unit over the same period.

It has been a tough year generally for chip stocks because investors have been concerned about a slowdown in demand for chips and the weakening global economy. AMD shares have fallen by roughly 32% this year, while the iShares Semiconductor ETF (SOXX), which tracks the performance of the ICE Semiconductor Index, has declined 24%.

But if analysts are right about AMD’s prospects for taking business away from Intel, it will bode well for the company’s stock price when the current big-picture downturn ends.

Write to Tae Kim at [email protected]

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Credit: www.marketwatch.com /

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