Semiconductor sector surges after AMD and INTC receive upgrades

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April 3, 2019 1:04pm NYSE:SMH

From Emily Bary: Shares of Advanced Micro Devices Inc. are soaring Wednesday after Instinet began coverage of the stock with a buy rating.

Analyst David Wong is encouraged by several aspects of AMD’s AMD, +9.36% business, including its “solid” positioning in the x86 microprocessor and standalone GPU markets. “We contrast this with competitors Intel and NvidiaNVDA, +3.54% which are each dominant in only one of the microprocessor/GPU markets,” he wrote in a note to clients.

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Wong sees potential for AMD to pick up market share in both microprocessors and GPUs. He predicts that the company could achieve greater than 10% share in x86 datacenter processors, 15% to 20% share in desktops and notebooks and greater than 30% share in desktop and mobile GPUs.

“We believe that further share momentum, as well as favorable mix, will help drive AMD’s sales growth through 2019, 2020, and beyond,” wrote Wong, who set a $33 price target on the shares.

Profitability is also a key lever in Wong’s view, as he writes that “a return to sustainable profitability” could help give shares a boost. In the next few years, he sees an opportunity for AMD to show earnings power of $2 a share. The company generated 46 cents in annual EPS in 2018.

AMD’s stock shot up 12% in very active midday trade, putting them on track to close at a 6-month high. Trading volume spiked to 113 million shares, enough to make the stock the most actively traded on major U.S. exchanges.

Wong began coverage of peer Intel Corp.’s shares INTC, +2.66%  as well on Wednesday, labeling the stock a buy. He likes the company’s potential in artificial intelligence and autonomous driving.

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“Intel’s autonomous driving sales (Mobileye) could grow from $700mn in 2018 to more than $1.5bn by 2021, based on continuing growth in the Mobileye EyeQ3 and ramping sales of Intel’s EyeQ4 product,” he wrote. Wong assigned a $65 target price to Intel’s stock, which is up 2.1% in morning trading.

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AMD shares have gained 75% over the past three months, while Intel’s stock has risen 27% and the S&P 500 SPX, +0.49%  has jumped 18% in the same period.

The VanEck Vectors Semiconductor ETF (SMH) was trading at $112.10 per share on Wednesday afternoon, up $3.06 (+2.81%). Year-to-date, SMH has gained 14.61%, versus a 8.15% rise in the benchmark S&P 500 index during the same period.

SMH currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #16 of 68 ETFs in the Technology Equities ETFs category.

This article is brought to you courtesy of MarketWatch.

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