Updated at 12:34 pm EST
Advanced Micro Devices (AMD) – Get Advanced Micro Devices, Inc. Report shares slumped lower Thursday after analysts at Barclays downgraded the chipmaker, citing looming pressure from rivals in gaming and PC markets next year.
Barclays analysts Blayne Curtis lowered his rating on AMD to ‘equal weight’ from ‘overweight’, while cutting his price target on the group by around 22% to $115 per share, citing “cyclical risk across several end markets” looming in 2023.
He also cited increasing competition from Intel (INTC) – Get Intel Corporation Report, which is accelerating spending on new foundries and technologies to meet future demand under CEO Pat Gelsinger and recently unveiled a $5.4 billion takeover bid for Tower Semiconductor (TSEM) – Get Tower Semiconductor Ltd Report, as well as ARM Holdings, the U.K.-based chipmaker that failed to complete a $40 billion takeover by Nvidia (NVDA) – Get NVIDIA Corporation Report earlier this year.
“We don’t have a smoking gun pointing to a correction underway in any of these markets, but it’s very clear to us that all 3 segments (gaming, PC and ‘broad-based/XLNX’) are running at elevated levels,” Curtis said. “The core issue here is what will be AMD’s growth trajectory coming out of this potential correction and the answer to this will be just how competitive Intel and ARM will be in 2024/25.”
“We would rather move to the sidelines until we have better clarity as to the magnitude of these corrections and what the competitive landscape will look like as Intel catches up and ARM takes more share,” Curtis added.
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AMD shares were marked 7.2% lower in early Thursday afternoon trading at $110.60 each, a move that would extend the stock’s year-to-date decline to around 26.4%.
AMD said last month that 2022 revenues should come in north of $21.5 billion, a 30% increase from last that that is also well ahead of the Refinitiv forecast of $19.25 billion, thanks to surging demand for its data center chips.
For the three months ending in December, AMD posted earnings of 92 cents per share, topping Street forecasts by 16 cents, on adjusted revenues of $4.83 billion. Over the whole of 2021, in fact, cloud and enterprise server chip sales more than doubled, leading in part to the optimism underpinning the 2022 sales guidance.
AMD is also expected to get a boost from its $35 billion takeover of Xilinx (XLNX) – Get Xilinx, Inc. Report, which was recently cleared by market regulators in China.
Xilinx’s data-center chips have become much more valuable in the wake of the global pandemic, triggered in part by a surge in work-from-home dynamics that have pressured companies around the world to improve their technology and storage capabilities.