Is the world moving towards a global recession? That looks like a real possibility and one Wall Street analyst is already convinced that is the case. But along with believing a global recession is around the corner, Northland’s Gus Richard also thinks that, in general, semiconductor companies’ estimates are “too high.” Now the 5-star analyst has been making some tweaks to his model for one of the segment’s giants.

On the one hand, to account for a global recession, Richard has cut $2.8 billion out of his CY23 revenue forecast for Advanced Micro Devices (AMD). There are lowered estimates for PC CPUs, GPUs, Xilinx, and gaming consoles. Given AMD in servers CPUs is at the “top of the stack,” Richard believes AMD will see “little impact” on this business in CY23, and server revenue has been left as is.

Richard now sees PC CPU revenue falling by 6% next year, while GPU revenue will drop by 7%. Put together, this will see CPU and GPU revenue falling by $675 million year-over-year. On an “apples-to-apples comparison,” Richard expects Xilinx revenue to drop by 6% although Xilinx was acquired in the middle of Q1 and therefore Richard anticipates AMD’s Xilinx revenue will rise by $250 million in 2023. Game console revenue is anticipated to climb 8% higher in CY23 – or by $400 million – but there is still a $740 million trim to the prior estimate.

What does it all mean for investors? Richard slightly lowered his price target for AMD stock from $97 to $95, suggesting shares have room for 29% growth in the year ahead.

The interesting part is that along with the slashing of prior estimates, there is also a rating upgrade – from Market Perform (i.e. Neutral) to Outperform (i.e. Buy). And there’s a simple explanation why.

Since peaking last November, AMD has seen “significant multiple compression” with the shares down 54% since. “Shares are trading at 16x our CY23 estimates versus 32x our consensus CY23 estimate at the beginning of CY22,” Richard explained. “We believe macro headwinds are now in our estimates and the share price.” (To watch Richard’s track record, click here)

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According to the rest of the Street, Richard’s objective is a conservative one; at $133.38, the average target suggests shares will soar 81% in the year ahead. All in all, the stock has a Moderate Buy consensus rating, based on 16 Buys vs. 9 Holds. (See AMD stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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