Shares of Advanced Micro Devices Inc. have been hot since the start of the pandemic, but an analyst fears the momentum may stall due to a possible slowdown in digital transformation efforts and remote work initiatives.
Northland Capital Markets analyst Gus Richard warned Monday that unit demand for the semiconductor industry could decline next year, while 2023 could bring “excess capacity.” It downgraded AMD AMD,
and upgraded Intel Corp. INTC,
by giving them the two notes equivalent to a “take”.
“Demand has been pulled forward by the pandemic and inventory build-up is underway, with inventory starting to show up on balance sheets throughout the supply chain,” he wrote. “As the global economy recovers… people will shift from buying to manufacturing, and the demand for products that consume semiconductors will slow down, in our view. “
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Richard downgraded AMD stocks relative to market performance relative to their outperformance on Monday, writing about the potential for slowing demand, as well as his expectations that “persistent” inflation could reach multiples. “Liquidity is about to be withdrawn, raising bond yields, lowering the value of future earnings and lowering multiples on growth stocks, in our opinion,” he wrote in a note titled: “The thrill is gone for now.”
Richard is concerned about what he sees as a sparkling market and has urged investors to pay attention to the lessons of the dot-cot collapse. Before the bubble burst, venture capital-backed startups bought “Cisco routers and Sun servers” which were then “sold for pennies on a dollar on eBay, which depressed demand for semiconductors for a few years, ”he wrote.
Back then, “there was a speculative fever for companies with lots of promises and no income”, and now “there are PSPCs”.
Regarding AMD in particular, Richard predicts the company will grow revenues by 65% in 2021 before experiencing a slowdown to 21% growth in 2022. He models 104% growth in adjusted earnings for 2021 but expects that this rate also slows down to 30%. in 2022.
AMD shares have nearly tripled from their pandemic low, while Intel shares are down around 9% over the same time frame. Richard still has some skepticism about Intel’s positioning and corporate culture, but he improved his equity performance relative to the underperforming market on Monday, in part due to its recent underperformance.
Read: Intel’s investment plan raises concerns about analyst margins
“As a foundry, Intel will probably have the [Department of Defense] and [National Security Agency] as customers and will be able to sell approximately 60,000 high margin wafers to the US government per year, ”he wrote. “We don’t give Intel’s plan a high probability of success, but neither is it.”
Intel shares were up 0.6% in Monday afternoon trading, while AMD shares were up 2.4%.