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AMD Down 14 Percent Intraday after a Downgrade

Advanced Micro Devices (NYSE: AMD) the company most know as AMD, has had a great 2013. That is, if you consider a rally up to about $4.50 a great year. The stock was up 83 percent until Thursday. Goldman Sachs (NYSE: GS) chip analyst James Covello cut his rating on the stock from “Neutral” to “Sell.” He wrote,

“As has been the case with many of the other rallies in AMD, which have all faded, ultimately, the numbers do not justify the move in the stock, in our view.”

It’s true that the company will likely see some upside with its chips going into the next Sony (NYSE: SNY) PlayStation as well as the Microsoft (NYSE: MSFT) Xbox but Covello believes that total gaming revenue in 2014 could reach $960 million.

But the problem remains the PC business. Covello noted:

PC business remains a headwind. Our model assumes that AMD continues to lose market share in the core PC market, and we assume AMD’s share of PC client processors declines to 13% in 2014 from 17% in 2012 (Exhibit 3). We believe our view on AMD’s share in the PC client business is below consensus. We expect AMD will lose further share in the performance areas of the market to Intel, as we believe Intel’s integrated design and manufacturing allows it to more quickly ramp leading edge products. In power-sensitive applications, we believe AMD will lose share to new ARM-based entrants such as Qualcomm due to the low-power characteristics of the ARM core.

The stock has had a monster run to the upside making Thursday’s sell off more amplified than it might be if it weren’t for the 83 percent ascent of 2013. It’s also worth noting that when a stock is priced at $3.60, percentage moves look bigger than they actually are.

Regardless, as Covello alludes to, the recent run up in the stock doesn’t quite match the fundamentals of the company.

Disclosure: At the time of this writing, Tim Parker had no position in AMD, nor will he ever!

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