AMD's Shares to Outperform Peers During Chip Industry Downturn

Analysts are predicting that Advanced Micro Devices Inc. will be one of the few semiconductor companies to experience growth in 2023, despite concerns about a potential downturn in the chip sector.

‍
Wall Street firms are expecting rising sales and earnings from the semiconductor company this year, and they expect the stock price to follow suit. AMD’s shares are likely to jump 19%, based on brokers’ average price target, more than its biggest US peers such as Intel Corp. and Nvidia Corp. The positive sentiment reflects AMD's ongoing progress in gaining market share from Intel in the server processor space, as well as potential gains from Meta Platforms Inc. increasing its spending on chips for its metaverse project. AMD's fourth-quarter results, due after the market closes Tuesday, are expected to show a small sales increase, and investors will be focused on the company's guidance for this year.

‍
"While Intel is struggling, AMD is still posting strong growth in its key data-center unit," said Dan Morgan, a senior portfolio manager at Synovus Trust Co., which owns stakes in both companies. A year of outperformance against Intel would be a return to form for AMD after a disappointing 2022. In that year, AMD's stock lost more than half its value, while Intel's stock only dropped by 49%.

‍
Although they've been in competition for more than two decades, AMD and Intel are now roughly the same size, at about $116 billion each. This is a far cry from 2000, when Intel was the industry whale, with a market value of $500 billion, and AMD was a minnow at $11.7 billion. Intel has been slow to introduce new products in recent years, allowing AMD to lure away customers. Now, with the slowdown in personal-computer sales, Intel is getting hit hard. Last week, the company forecast one of the worst quarters in its history. In response, Intel is eliminating jobs and slowing spending on new plants, in an effort to save as much as $10 billion.

‍
Analysts are forecasting that AMD will report a 3% increase in earnings per share this year and a 6% rise in revenue, while Intel is forecast to report double-digit declines in both measures.

‍
Chip companies' earnings are expected to decline sharply this year, according to analyst estimates. At the end of October, earnings were expected to decline by 9.1%. Revenue is also expected to decline, by 6.9%. Samsung Electronics Co., which supplies semiconductors used in Apple Inc.'s iPhones, said Tuesday that it expects a recovery in the chip market to begin only in the second half of the year.

‍
Intel's dominance in the market for processors used in servers has slipped in recent years, as the chipmaker was slow to introduce new products and some customers developed their own in-house chips to replace Intel processors. According to Mercury Research, Intel still holds more than 70% of the server processor market.
Blayne Curtis from Barclays Plc upgraded AMD to overweight last week, saying that the company’s platforms should drive further share gains versus Intel this year. However, given the high expectations in the stock, a disappointment could lead to a sell-off.

‍
"The upcoming report and guidance from AMD will be crucial for the stock," said Matthew Maley, chief market strategist at Miller Tabak + Co. "If their guidance is negative despite the fact that they're taking market share from Intel, it will be very negative. It will tell us that the entire industry is under even more pressure than they were in the second half of last year."

‍
The Nasdaq 100 has rebounded in recent weeks, rising for four consecutive weeks. This is the longest streak of weekly gains for the index since August of last year. However, futures on the benchmark were down 0.7% at 6:25 a.m. in New York, indicating the index might extend Monday’s losses. If the index dips back below the closely followed technical level, it could threaten the recent gains.