AMD's $14 Billion Rally Hasn't Swayed Wall Street Skeptics

(Bloomberg) -- Shocked by the 145 percent rally in Advanced Micro Devices Inc. this year? So are the analysts on Wall Street who are supposed to see these things coming.

More than $14 billion has been added to AMD’s market value in 2018 and the stock is the best performer in the S&P 500. But you’d have a tough time knowing anything good was going on based on the work of analysts, who have regarded the chipmaker with skepticism for years. While the number who recommend buying the stock is up slightly this year, they’re still outnumbered by those who are ambivalent or bearish.

“Shares appear more fully valued than cheap” at the current valuation, Credit Suisse analyst John Pitzer said in a note to clients. He has a neutral rating on the stock.

That kind of skepticism is rare for a stock that’s up more than 13-fold over the past three years. Rival chipmaker Nvidia Corp., the second-best performer in the S&P 500 over that period, has buy ratings from almost three quarters of its analysts, according to data compiled by Bloomberg. And Amazon.com Inc., whose returns have been dwarfed by AMD, has buy ratings from all but two of its 50 analysts.

In fact, of the top 10 gainers in the S&P 500 over the past three years, only car-auctioneer Copart Inc. has a lower percentage of analysts who recommend buying the stock. Even rival Intel Corp., whose technology delays, security woes and leadership void have weighed on its shares, has a higher percentage of buy ratings than AMD.

With AMD, Wall Street always seems to be waiting for the other shoe to drop.

“If you look back at their history, sooner or later the incumbents catch up to them or they themselves do something goofy and investors are left holding the bag,” Kim Forrest, senior portfolio manager at Fort Pitt Capital Group LLC in Pittsburgh, said in a phone interview.

Much of AMD’s rally has been based on promises of unproven products. Intel’s 10-nanometer technology delays have created an opportunity, but past stumbles have created a mood of fatalism. Over the past decade the company has promised new products that would help win back sales lost to Intel, only to deliver ones that didn’t meet expectations or were delayed.

In the server chip business, one of the most lucrative markets in the semiconductor industry, AMD had 1.4 percent market share for processors in the second quarter, according to Mercury Research. That’s up from 0.6 percent in the same period a year ago. The company has targeted “mid-single-digit” percentage market share by the end of the year. Intel controls the rest of the market.

AMD briefly extended its winning streak to eight days on Tuesday before turning lower. The shares were little changed at 10:10 a.m. in New York after flitting between gains and losses in early trading. The stock is up 38 percent this month and trading at its highest levels since September 2006.

Short sellers hope that history repeats itself. Short interest accounted for about 18 percent of the AMD shares available to trade as of Friday, according to data compiled by IHS Markit Ltd. That’s down from a high of 27 percent in April but above the 52-week low of 14 percent a year ago.

“They’ve clearly executed well, but looking forward can they keep executing?” said Forrest. “I’m making the bet no.”

--With assistance from Nancy Moran and Arie Shapira.

To contact the reporters on this story: Jeran Wittenstein in San Francisco at jwittenstei1@bloomberg.net;Ian King in San Francisco at ianking@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Chris Nagi

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