Following a strong rally in recent years, Advanced Micro Devices Inc. shares could to face a tougher stretch ahead amid signs of fundamental “fatigue.”
Piper Sandler analyst Harsh Kumar downgraded AMD’s stock AMD,
While Kumar doesn’t anticipate “a breakdown in fundamentals in the near-term” or earnings misses during the next two quarters, he does predict that some industry dynamics could become less favorable.
Researcher Gartner indicated a 5% year-over-year decline in worldwide PC shipments during the fourth quarter, and though 2021 was overall a strong year for the category, Kumar thinks growth will be down in 2022 as the consumer PC market could show “signs of fatigue.”
“[U]ltimately we do see a combination of growth and a slowing PC environment burdening the stock,” he said in his note to clients. “In our eyes, this represents a high-multiple setup coupled with a slowdown in growth.”
AMD’s stock has lost about 12% so far this year, after soaring 57% in 2021 and rocketing 100% in 2020. The stock has increased 13-fold over the past four calendar years.
See also: AMD shows off $200 graphics card and new chips in CES presentation
Kumar also has concerns about what AMD’s pending deal for Xilinx Inc. XLNX,
Kumar sees some financial positives to the deal, including that it could boost AMD’s overall operating margins. But he also thinks the combination could “only be a few cents accretive in the first full year, which is below initial expectations at the time of the deal announcement.”
Accordingly, the merger could “lead to more fatigue in the near term than benefit given the lower growth profile and limited initial cost cuts,” he wrote.
AMD had expected the Xilinx deal to close by the end of 2021, but it has yet to receive all of the required regulatory approvals and now anticipates that the transaction will close during the first quarter of 2022.
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Kumar also cut his rating on shares of NXP Semiconductors NV NXPI,
“We believe the pace of orders and strong pricing may come into question as supply normalizes in the second half of calendar 2022,” he wrote.
About half of NXP’s revenue is linked to the auto market, he continued, making the stock “most at risk” from this trend among the names he covers.
Shares of NXP are off 0.5% in Thursday trading. They’ve increased about 6.3% over the past three months and AMD shares have risen 9.4%, as the S&P 500 SPX,
Cryptocurrency prices tumbled Thursday night, with bitcoin hitting its lowest price since last August.
Emily Bary is a MarketWatch reporter based in New York.
