AMD's stock price reflects a 'scenario we don't believe possible,' analyst says (AMD)

AMD shares will dropmore than 30% to $18due to comparative disadvantages in its competition with Intel, New Street Research analyst Pierre Ferragu says.Last month analysts expected Intel to undersupply its 10-nanometer chip, but later a reportsaid Intel may cure its production problemsooner than expected.AMD is expected to launcha 7 nm datacenter GPU later in 2018,which in theory should provide better performance than 10 nm ones, according to Moody's.The 7 nm chip won't help AMD win over Intel, Ferragu says.Watch AMD trade in real time here.AMD is in a tough position competing with Intel, and shares will finally be dragged due to comparative disadvantages in its competition with Intel, according toNew Street Research."AMDs stock price reflect a scenario we dont believe possible," saidPierre Ferragu, an analyst at New Street Research in a note sent out to clients on Friday. He sees shares tumbling by 30% from almost $27 to $18.By his calculation, AMD's current share price, if fairly valuing the company's business, should be equivalent to a $1.5 earnings per share in 2020. And to achieve that, the chip maker should sell at least $2.5 billion server CPU and $3.2 billion PC CPU, which inFerragu's eyes is impossibleespecially when AMD is competing with Intel in the processor area."Intel can easily bring to market an architecture similar to AMDs, with better performance," saidFerragu. He estimates AMD's 2020 profit to be$0.84 per share.AMD shares have been boosted by Intel's 10-nanometer chip delay saga. Last month, shares rallied afteranalysts projectedthat Intelwould undersupplyits10-nanometer chips between the last quarter of 2018 and the second half of 2019 by 15%,benefiting AMD in the server and PC market.But later, aresearch report said Intel may cure its production problemsooner than expected, sending AMD shares down 4% immediately following the news.And while the ratings agencyMoody'srecently upgraded AMD, sayingit has sped up sampling 7-nanometer server processors, which in theory provide better performance than 10nm ones,Ferragu believes 7 nm chips won't be a "game changer."He added that back in 2014 Intel delayed its 14 nm chip deployment, but neither its PC CPU or server CPU revenue had been largely impacted."We dont see Intels delay in the 10 nm node as a material moving part," Ferragu said. "Moving to the next node increases the performance of AMD chips, but still keeps them largely behind Intel on single-thread performance."And millennial investors are dumping AMD from their portfolios on Robinhood, a no-fee trading app popular among younger traders.Over the past three weeks,AMDsaw the biggest decline in the number of investors with a net drop of 13,677, or8.1%.AMD shares were up 61% this year.Now read:Beware the 'real killer' in markets that's threatening to strike after decades in hidingThe video game industry is going to have a very happy holiday seasonthese 6 charts show whyGOLDMAN SACHS: Investors are making extraordinary bets that these 15 stocks will explode higher before the end of the yearJoin the conversation about this storyNOW WATCH: Ray Dalio says the economy looks like 1937 and a downturn is coming in about two years
Click here to read full news..