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The Ratings Game: If AMD earnings were a snack: ‘A little crunchy on the outside, but the creamy center still tastes good’

Weakness in personal-computer sales mixed with strong data-center sales made Advanced Micro Devices Inc. earnings a snack that was “a little crunchy on the outside, but the creamy center still tastes good.”

That was one analyst’s take from Tuesday afternoon’s report, but the consensus was similar — PC weakness will hurt AMD

in the near-term, but largely be pushed to the side by strong data-center results and a damaged Intel Corp.

While AMD’s forecast for the current quarter was a little light on a larger-than-expected drop-off in PC sales, the company has enough confidence in its data-center sales to hold on to its outlook for the year.

Bernstein analyst Stacy Rasgon wrote that summary, noting that the mixed report comes after virtually flawless earnings reports AMD has been turning in over the past several quarters.

“Even if a touch light, 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 (indeed, compared to what happened to Intel, AMD looks downright impressive),” Rasgon wrote.

He expanded on the competitive pressure on Intel, writing, “Dynamics suggest AMD’s channel is in far better shape than Intel’s. And outlook appears appropriately de-risked (with Q4’s modest sequential lift assisted by continued strong datacenter, new product launches, and an extra week; it seems achievable to us).”

AMD shares fell as much as 5% Wednesday to an intraday low of $94.27, but rallied back in afternoon trading to trade down around 1% on the day, still lower than benchmarks. The S&P 500 index

was up 1.7%, and the PHLX Semiconductor Index

was up 2.4%.

Jefferies analyst Mark Lipacis, who has a buy rating and a $135 price target, said the “combo of AMD’s execution and INTC’s misexecution increases our conviction that AMD continues to take material share from INTC over the next 18 months.”

Lipacis estimated AMD took 300 basis points of PC revenue share quarter over quarter. “Given AMD’s mix shift to higher ASP segments with its product launches and growing share in enterprise PCs, we expect AMD to continue gaining revenue share,” the analyst said. “AMD noted minor buildup in its PC inventory that it described as modest.”

Read: Take a bow, Lisa Su: AMD’s data-center business is a true rival to Intel

Cowen analyst Matthew Ramsay, who has an outperform rating and a $120 price target, said AMD’s results were “quite the contrast versus Intel’s challenges.”

“The bar was high after a +35% stock move the past month (and there are a couple nitpicks to explain on GM and FCF), but share gain trajectory and strong/broadening road map very much intact,” Ramsay said.

“We believe AMD has strong capacity commitments from TSMC

and others, though investments in capacity are temporarily constraining FCF,” Ramsay said. “This lines up 4-6 quarters of visibility, particularly important to major datacenter/PC customers that should enable growth in a sustained spending environment.”

Of 38 analysts surveyed by FactSet, 27 have buy-grade ratings, 10 have hold ratings, and one has a sell rating, with an average price target of $123.34.

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