Higher Expectations for AMD After Google Partnership

It was just on Tuesday that Alphabet Inc. (NASDAQ: GOOGL) confirmed that Advanced Micro Devices Inc. (NASDAQ: AMD) would be the winner of its new Stadia cloud-based streaming video game service. It turns out that the Google team may be using AMD for more than just gaming, and that means broader market penetration at the expense of more expensively priced chipsets from rivals.

Merrill Lynch’s Vivek Arya reiterated a Buy rating on AMD but raised the price objective to $30 from $27. The main point of the call was that the new Stadia game streaming service will use custom AMD chips.

Arya noted that this is possibly a big opportunity as every user supposedly gets access to their own GPU. Also noted was that AMD is gaining traction in data center opportunities.

Merrill Lynch also reiterated its Buy rating and $193 price objective on Nvidia Corp. (NASDAQ: NVDA) as an indication that game streaming is likely to be more complementary and not cannibalistic to the traditional PC gaming. The report showed that Nvidia has 300,000 users on its GeForce Now PC gaming service and that it has a million more users on the wait-list. Arya said:

In addition, we believe streaming services actually raise the lowest common denominator (in terms of performance) for game developers. Promised performance for streaming is roughly 2x that for existing consoles (supporting up to 10.7 teraflops of power), such as the Xbox and PlayStation. In other words, this could actually support NVIDIA’s view that ASPs for gaming GPUs will continue to expand.

Cowen Matthew Ramsay reiterated his Outperform rating on AMD as well, noting that Google likely will use AMD chips for its own servers in 2019. The increased collaboration between AMD and Google also will bring a larger opportunity than just the streaming video game partnership for the 7nm Rome server CPUs later in 2019.

Some analysts were not as gung-ho on AMD after the Google news. Oppenheimer kept its Perform rating, noting that the formal news might not be as new as the market reaction indicated. Jefferies also maintained its Underweight rating and $17 target, noting that the shares were still ahead of the fundamentals.

AMD shares were last seen trading down 1.5% at $25.63 on Wednesday, but they had been as high as $26.88 (up 3.3%) earlier in the day, after having risen 11.8% on the prior day’s Google partnership news. The 52-week trading range is $9.04 to $34.14, and the consensus target price from Refinitiv was last seen at $24.86.

Nvidia was trading up just six cents at $175.77, in a 52-week range of $124.46 to $292.76.

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