Despite continued dominance in the server space, Bernstein said sliding computers and the demand for new parts are not exciting for Advanced Micro Devices. Analyst Stacy Rasgon downgraded semiconductor stocks to market performance from the best. It also cut its price target by $15 to $80, implying a more modest 4.5% upside from Monday’s closing price. The downgrade is due to a drop in demand for personal computers in recent months. This is the result of consumers switching spending from goods to services and completely rethinking large purchases in the face of inflationary pressures. “It must be said that the PC environment has deteriorated significantly since then,” Rasgon said in a note to a client. “And our belief that AMD would prove relatively more resilient to channel degradation has unfortunately proven wrong, and we’ve become increasingly wary of potential PC dynamics in recent months.” Shares lost 2.5% in premarket trading. AMD shares started the year well, gaining 18.2%. However, in 2022 they fell by 55%. Rasgon said AMD’s new client components became available at deep discounts in less time than the previous generation as Intel’s “semi-disruptive behavior” led to a glut in the component market. He said AMD has the potential for some risk to growth margins beyond what was expected as a result of broader market concerns due to falling demand coupled with rising costs. The analyst added that Wall Street’s expectations for an increase in gross margins in the second half of 2023 are “somewhat optimistic” unless current client trends become transient, which he does not believe. While he said the current price-to-earnings multiple is not “extremely aggressive,” he doesn’t expect it to widen many times over until investors figure out where stocks bottom. However, he noted that the company continues to outperform Intel in the server space and expects its position to be further strengthened with the Genoa offering. Rasgon said the downgrade is hurting him precisely because of AMD’s strong data centers. — Michael Bloom of CNBC
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