Proactive Investors - Analysts believe computing vendors like Intel Corp (NASDAQ:INTC, ETR:INL) and Advanced Micro Devices (NASDAQ:AMD) Inc (NASDAQ:AMD, ETR:AMD) faced a softer-than-anticipated first quarter but there are positive signs the market is improving.
In a note to clients ahead of Intel and AMD’s quarterly earnings reports, Wedbush analysts highlighted that momentum in building personal computers (PCs) slowed in the first quarter when compared to 4Q 2023.
Despite hopes for benefits from a refresh cycle, this appeared not enough to offset economic weakness in China, they added.
However, the analysts believe that towards the end of the quarter, there were improvements in server trends, likely driven by orders from cloud service providers.
“[These trends] create the promise of improvement in an important end market in Q2, though we see newly reported Chinese restrictions around telco offerings as a potential headwind that could offset a portion of the positive momentum,” they wrote.
Intel
For Intel, which is due to report its earnings on Thursday, May 25 after the market closes, the analysts see negatives slightly outweighing positives moving forward.
“We see no reason to be more optimistic around near-term trends for Intel,” they wrote, specifically highlighting continued weak PC demand, market share loss in enterprise computing to AMD, and apparent new restrictions from the Chinese government on the use of US silicon by the nation’s telecommunications providers.
“From an intermediate to longer-term perspective, we continue to believe Intel’s success or lack thereof will likely be dictated by the company’s ability to restore competitiveness in its fab operation,” they wrote.
The analysts reiterated their price target of $40, compared to its current share price of $36, and a ‘Neutral’ rating on Intel.
The Wedbush analysts see the company’s results and guidance for the current quarter as less important than management commentary regarding its AI sales expectations.
“We are uncertain as to what AMD management might guide to with regards to AI, and while we don’t believe management will reduce prior forecasts, we certainly see some probability management maintains its current targets,” they wrote.
“And, we are less certain how the stock might react if management chooses to just hold its AI forecasts, even if the outlook for server compute has improved.”
Regarding AMD’s results, they believe their thesis that the PC environment was more difficult than expected during the first quarter and server builds only picked up later in the period are largely captured in their expectations.
For the current quarter, they see PC headwinds persisting but also believe that starting in March enterprise computing has picked up meaningfully.
“Net, we are at least cautiously optimistic around AMD’s results and outlook heading into earnings,” they wrote.
They maintained their ‘Outperform’ rating and $200 price target on AMD, which traded hands at about $156 on Wednesday.
AMD is expected to report earnings on Tuesday, April 30, after the closing bell.