Morgan Stanley Raises AMD Price Target to $465

Morgan Stanley analyst Joseph Moore raised the price target on AMD (NASDAQ: AMD) to $465 (from $410) while maintaining an Equalweight rating.

“Thoughts on the stock: We can’t completely ignore the cost of the warrants. The CPU narrative is exceptional, and the Helios is likely to make inroads next year.

But the Helios success comes at a marketing expense of issuing $15 bn+ in warrants for every $15-20 bn in revenues for two customers for the foreseeable future.

If that were treated as a cash expense, it would wipe out profitability. We actually think the warrants are a good idea, and are likely to stimulate customer interest.

But issuing stock has a cost, and whatever GPU success that they achieve is clearly influenced by these deals.

That does put an asterisk next to the potential achievements in GPUs – and points to better risk/rewards for stocks that trade at a mid teens multiple on earnings that don’t have such a high contra cost.

To be clear, we aren’t objecting to the warrant issuance, but we are saying that it has a negative impact on the earnings of the company over the next 3-4 years, which makes the stock less attractive than peers that aren’t doing that.

As far as our PT, we had assumed a ~31x multiple on CY27 Modelware EPS (incl stock comp) of $13.13.

Our numbers come up to $15.09, and on the same ~31x PE, our PT comes up to $465 vs $410 previously. ~31x is a premium to large cap AI semis peers NVDA and AVGO, reflecting unique opportunities in server CPU and a potentially long runway for growth in AI.”

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