Global PC demand remains in a downcycle but reduced inventory levels and early signs of an uptick in server demand among cloud service providers (CSPs) could bolster sales in the first quarter of 2023 and beyond, according to Wedbush analysts.
Furthermore, those beefy computer rigs built during the Covid-19 lockdown period may be due for an upgrade, further contributing to global PC demand.
These factors support a cautiously optimistic outlook for computer hardware heavyweights Intel Corp (NASDAQ:INTC, ETR:INL) and Advanced Micro Devices Inc (NASDAQ:AMD, ETR:AMD), although the former’s unreasonably high valuation caught the attention of analysts.
Wedbush sees higher revenue levels and improved gross margins for Intel, based on expectations of an increase in standard server builds and a less pronounced seasonal dip in PC sales.
But analysts warned that Intel's current premium valuation, in contrast to historic norms, “poses a question mark, especially given the uncertainty around the company's progress in foundry execution”.
Intel is one of the few vertically integrated chipmakers, being both a designer and manufacturer of microchips via its growing network of foundries.
While analysts stated that better foundry execution could justify a higher valuation, “we still remain unclear on Intel’s progress”.
“Having said this, with fundamentals getting better, we see no negative catalyst for the stock and thus no reason to be cautious on the name,” they said, giving the stock a neutral rating.
Investors are advised to keep an eye on Intel’s foundry roadmap to see if it can make inroads into the capital-intensive industry dominated by Taiwan Semiconductor Manufacturing Company.
AMD gets an AI uplift
Wedbush is decidedly more bullish on fabless chipmaker AMD in the short term, particularly given the traction it is gaining in the artificial intelligence space.
AMD’s MI300 chip has emerged as a genuine contender to Nvidia’s first-mover advantaged H100 chip, with AI sales guidance of $2 billion tipped for the year ahead.
Wedbush noted that three of the four largest CSPs have put in orders for AMD parts in 2024, although general consensus is that AMD will play second fiddle to Nvidia for the foreseeable future.
“We also would suggest that given AMD’s apparent customer base, that it’s very believable that AMD will be able to take a mid to high single-digit share of the overall AI market by the end of the year,” said Wedbush.
Using a price-to-earnings multiple of 30x, Wedbush put a $200 price target on AMD stock, implying a 19.4% upside to the stock’s current valuation.