24/7 Wall St.

Advanced Micro Devices Inc. (NASDAQ: AMD) reported earnings on Tuesday that have proven that much of AMD’s turnaround is real. It also signals a portion of the opportunity that awaits as consumers and businesses adapt to more deep graphics, virtual reality, augmented reality, artificial intelligence and machine learning efforts.

AMD reported a net loss of $16 million, or $0.02 per share, but on an adjusted basis it posted positive earnings of $0.02 per share on revenues of $1.22 billion in the second quarter. Advanced Micro Devices also projected that revenue would grow by 23% sequentially in the third quarter, plus or minus 3%.

24/7 Wall St. has tracked multiple analyst calls in AMD after its key earnings report. Some calls were in detail, while others have been featured only in passing. Most of the calls came with higher price targets, but some caution remains and there was even one downgrade seen after AMD’s mega-run.

Loop Capital Markets maintained a Hold rating and raised its old $13 target price up to $14, noting it was back to a slim profitability. Its valuation is now based on about 2.6 times the firm’s EV/2017 revenue estimate of $5.056 billion (from $4.746 billion). The firm still thinks AMD should continue to trade at a discount to its blended peer group average of about 3.1 until it shows back-to-back quarters of profitability.

Merrill Lynch reiterated its Buy rating and raised its price objective to $18.00 from $16.50. Of the $63 million in revenue “beat” that was seen, Merrill Lynch believes that just $15 million to $20 million of that was from crypto-currency graphics cards, and it thinks most of the beat was from AMD’s core PC, server and gaming markets. In fact, Merrill Lynch sees 2016 revenues of $4.27 billion growing to $5.04 billion in 2017, $5.85 billion in 2018 and $6.5 billion in 2019. The firm’s new investment rationale said:

We rate AMD Buy since we view it as the only company that can challenge two large incumbents Intel and NVIDIA in a $50 billion addressable market opportunity in PC, server, high-end gaming, deep learning and related markets where AMD has less than 5% value share currently. Second, the company’s model allows for semi-custom product and licensing options with potential customers, which would create further leverage in the model.

Oppenheimer maintained only a Perform rating on AMD. Its note cautioned:

While we are encouraged by the initial Ryzen rollout, we believe EPYC server CPUs and Vega high-end GPUs will see slower adoption in more difficult to penetrate markets versus incumbents Intel and NVIDIA, respectively. Limited earnings per share and free cash flow power in the model keep us sidelined here.

S&P’s CFRA has a Hold rating on AMD, but the firm raised its price target to $16 from $12. Its report reflects AMD’s inferior financial position versus peers, but the firm raised its earnings estimate to $0.09 per share (from $0.07) for 2017 and to $0.29 (from $0.26) for 2018. The firm is encouraged by demand for AMD’s Ryzen processors, as well as margin improvement from better product mix, and it sees the Vega GPUs adding to AMD’s growth.

There were four more analyst target hikes that were seen that were handily above the current share price, and all are Buy/Outperform in their notes:

• Robert W. Baird set a $20 price target.
• Rosenblatt Securities has a Buy rating and raised its price target to $22.
• Craig-Hallum raised its price target to $19 from $17.
• And Jefferies reiterated its Buy rating and raised its price target to $19 from $16.

Credit Suisse has a Neutral rating on AMD, but that rating comes with a mere $10.50 target that would sound and feel like a “sell” rating elsewhere. The report said that AMD’s valuation requires better profitability before it can rise further. The firm also thinks it is unclear how AMD will monetize the intellectual property valuation despite being at mere fractions of the Intel and NVIDIA valuations.

There were some target prices that were raised but were still under the current AMD share price as well:

• Deutsche Bank raised its target price to $12 from $10.
• Stifel raised its target price to $13 from $11.
• Susquehanna raised its target price to $15 from $12.

BMO Capital Markets downgraded AMD to Market Perform from Outperform with a $15 target price. The firm noted that AMD had a near-flawless execution but noted that there are unfavorable risk-reward opportunities ahead after such a strong gain that has already been seen.

AMD’s shares closed at $14.11 ahead of earnings on Tuesday and they were trading up 7.9% at $15.23 midday on Wednesday. It is worth noting that the stock hit a multiyear high of $15.65 earlier in the day. AMD had traded more than 142 million shares on this day alone at 12:15 pm Eastern Time, well on its way to trading more than twice its normal trading volume.