Analysts’ estimates are closely tracking management guidance, if available, as it contains the most forward-looking information. In the long run, stock prices are affected by management guidance and analysts’ estimates of future financials. While sustained R&D investment is critical in high-end chip sale for gaming and artificial intelligence, AMD’s Capex for 2020-2021 remains unimpressive (Figure 1D). The new challenge is that while higher corporate IT spending raised server demand in 2018, it looks to slow down in 2019. The good news is that the damages may have been baked into stock prices for a while. Overhang GPU inventory in the channel and slow Game Consoles sales, mainly a backdrop from the depressed crypto activities, lingers into 1H 2019. However, invading into Intel’s dominated high-end corporate IT server space is allowing AMD to expand its margin in the low 40%'s by early 2020 (Figure 1C). AMD’s strategy of regaining CPU market share through lower-end server CPUs seems to be paying off at the expense of a structurally lower margin than Nvidia and Intel ( INTC). Though, it is too soon to call the final split of future market share among AMD’s 7nm, Intel 10nm, and Nvidia’s Turing. The single-digit growth in data center CPUs and GPUs remains the near-term bright spot. The 1Q guidance, albeit 15% below analysts’ estimate, may still best Nvidia’s ( NVDA) 1Q outlook. Starting 2H 2019, AMD’s Ryzen and EPYC chips continue to be the key drivers in fueling the company’s sales growth. In the tech world, long term is anything over one quarter. It is therefore the purpose of this post to estimate those long-term target prices. Beyond that point, it is my estimate that the China woes and crypto back-end weakness should have been resolved and the market will be able to price AMD shares based on the company’s long-term fundamentals.

The subsequent stock price rally suggests that the market attention has been placed on the longer-term growth after 2H 2019.

Investors seemed to shed off the softness in 4Q revenue and the lower 1Q 2019 guidance.

Using Wall Street’s words, Advanced Micro Devices’ ( NASDAQ: AMD) 4Q performance has been “better than feared.” The company executes steadier compared with its peers in a difficult macro environment.

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