The Ratings Game: AMD stock jumps after analyst upgrades 2 months after turning bearish

Shares of Advanced Micro Devices Inc. surged Wednesday, after the chip maker was upgraded by Susquehanna analyst Christopher Rolland, who cited a mended cryptocurrency outlook, better-than-expected earnings and an improved competitive outlook.

Rolland raised his rating to neutral, after downgrading the stock to sell on March 26, saying “a lot can change in two months.” He also raised his stock price target by 38% to $11, which was now 15% below current levels, from $8.

The shares AMD, +2.89%  rallied 3.0% in afternoon trade, and were up as much as 4.3% at a 3 1/2-month high of $12.98 earlier in the session. They have now run up 32% since AMD reported first-quarter results after the April 25 close. After the results, Rolland had said while the results were “constructive,” risks of an Ethereum-related in the second half of the year remained “under-addressed.”

What prompted Rolland to get bearish in March was his concern over AMD’s reliance on Ethereum-related graphics processing unit (GPU) shipments. But since then, price hikes in Ethereum ETHUSD, -1.97%  application-specific integrated circuits (ASICs), which offered more than three times improvement over premium GPUs.

Other reasons Rolland changed his stance since late March include the sharp run-up in Ethereum prices and the fact that AMD’s first-quarter results were driven in part by non-cryptocurrency-mining products.

Perhaps most important, Rolland said, was Intel Corp. INTC, +1.17%  “surprisingly” pushing out volume production of 10 nanometer chips into 2019.

“For the first time in memory, AMD will compete at a similar process technology as Intel, a strong multiyear tailwind,” Rolland wrote in a note to clients.

Rolland said he believes the delay could improve AMD’s competitiveness for its next generation Epyc and Ryzen chips.

“A more competitive process technology may increase the likelihood of accelerated share gains versus Intel over the next few years, a potential game-changer,” Rolland said.

AMD’s stock has climbed 8.5% over the past three months, while Intel shares have run up 19.5%. Over the same time, the PHLX Semiconductor Index SOX, +1.30%  has gained 3.7% and the S&P 500 index SPX, +0.51%  has slipped 0.3%.

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