What happened
For the second day running, shares of semiconductor giant Advanced Micro Devices ( AMD -7.22% ) fell in Thursday trading as selling accelerated. As of 11:25 a.m. ET, AMD shares are down 6.1%.
And Barclays is to blame.
Image source: Getty Images.
So what
As StreetInsider.com reports this morning, British banker Barclays just downgraded AMD stock to “equalweight” (i.e., hold) and slashed its price target by 22%, to just $115 a share. Of course, AMD stock was trading closer to $119 a share before the downgrade — so despite the rating technically saying only to hold, investors sold.
The news isn’t all bad. In its note, Barclays forecast continued market-share gains for AMD (at Intel‘s ( INTC -2.84% ) expense) “in both the client and server markets.” Indeed, Barclays believes sales growth could exceed 31% in fiscal 2022. Problem is, by the time 2023 rolls around, Barclays believes “cyclical risk [will arrive] across several end markets (PC, Gaming, and broad-based/XLNX).”
All three of these markets, you see, have been “running at elevated levels” for AMD, but both Intel and ARM are becoming more competitive. Barclays believes that by the 2024/2025 time frame, Intel could catch back up to AMD, and ARM could even take “more share.”
Now what
So…not such great news for Advanced Micro Devices here — but don’t make the mistake of assuming that this is all good news for Intel. As Barclays confides, it’s still unclear how much progress Intel has made “in closing the process gap” with AMD’s chips. Although it’s true that Intel stock at less than 11 times earnings looks a lot cheaper than AMD stock at 48 times earnings, Barclays still rates Intel stock “underweight” (i.e., sell) with a $45 price target.
The worst it will say about AMD is that the future is too murky for it to recommend buying AMD now that the stock has run up 47% over the past year. And if the worst Barclays sees for AMD is a $115 stock price, then the downside risk here doesn’t look too bad.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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