Advanced Micro Devices (NASDAQ:AMD) fell nearly 5% on Wednesday, leading chip stocks lower, as Wells Fargo cut estimates on the Dr. Lisa Su-led company due to PC market weakness and emerging concerns in the data center business.
Wells Fargo analyst Aaron Rakers noted AMD’s (AMD) shares “are likely to remain under pressure” until investors feel that risks against the stock have alleviated. For his part, Rakers has an overweight rating and a $130-a-share price target on AMD’s (AMD) stock.
Rakers explained that the PC market is expected to decline in the mid-to-high teens this year and mid-single digits next year. And with incremental concern on the data center, there are “downside risks in AMD’s Data Center segment.”
As such, Rakers lowered his revenue and earnings estimates for 2022 to $25.5B and $4.11 a share, down from $26.2B and $4.32 a share. He also cut his 2023 and 2024 estimates, moving to $26.6B and $29.4B in annual revenue, with earnings per share of $4.13 and $4.75, respectively.
With regards to the data center, Rakers said AMD (AMD) is continuing to gain share, but there is a concern around inventory, particularly among the hyperscalers.
“AMD’s commentary on data center growth [and] resiliency is a key focus amid concerns around slowing hyperscale [capital expense] dynamics” and elongated deal cycles, Rakers said.
Nvidia (NVDA) and Intel (INTC), which both compete with AMD, fell in sympathy, declining 4% and 3%, respectively.
STMicroelectronics (NYSE:STM) shares were flat even as the company said it would build a €730M integrated Silicon Carbide substrate manufacturing facility in Italy to support the increased demand.
Production is expected to start in 2023.
Taiwan Semiconductor (NYSE:TSM) shares rose fractionally as Morgan Stanley recommended the semiconductor foundry, calling it a “top pick.”
A group of Morgan Stanley analysts noted that there is expected to be a semiconductor recovery in the second-half of 2023 and Taiwan Semiconductor (TSM) is likely to benefit, as it is “the enabler of future technology.”
The analysts also noted that Asian semiconductor companies would likely recover faster than their U.S. counterparts as some are trading at trough valuations, while trends such as 5G, artificial intelligence and electric vehicles continue strong growth.
Separately on Wednesday, analysts at Bernstein noted that Apple’s (AAPL) iPhone “may be a risk” for Taiwan Semiconductor (TSM) in the first-quarter of 2023 on worries that it will be “sub-seasonal” with the iPhone making the period even lower if it experiences slow sell-through.
“We still project Taiwan Semiconductor to raise price and the earnings growth in [calendar year 2023 and 2024],” the analysts wrote.
Several other semiconductor stocks were also in the red in late morning trading on Wednesday, including Texas Instruments (TXN), Analog Devices (ADI), Micron (MU) and Broadcom (AVGO), all down between 1% and 3%.
Bank of America recently reiterated its buy ratings on Advanced Micro Devices (AMD) and several other cloud computing-related semiconductor companies, noting the group is still likely to benefit from increased spending.