Chipmaker Advanced Micro Devices (AMD) delivered third-quarter results late Tuesday that were better than expected, but disappointed investors with its guidance for a flat gross profit margin in the current quarter, sending its shares plunging on Wednesday.
X AMD shares plummeted by 13.5% to close at 12.33 on the stock market today.
Sunnyvale, Calif.-based AMD reported adjusted earnings per share of 10 cents, up 233% year over year, on sales of $1.64 billion, up 26%, in the third quarter. Analysts expected 8 cents and $1.51 billion.
However, investors focused on its fourth-quarter guidance of flat gross margins and decelerating momentum.
Susquehanna Financial Group analyst Christopher Rolland called AMD's gross margin guidance "lackluster." He rates AMD stock as neutral with a price target of 15.
"In a quarter that had to be near perfect, we were disappointed by Q4 gross margin guidance of just 35%," Rolland said in a report. "We wonder if AMD is perhaps underpricing their GPU (graphics processing unit) products as there are still many 'stock-outs' and as retail channels are pricing many cards over 50% above MSRP (manufacturer's suggested retail price)."
IBD'S TAKE: AMD stock had been forming a cup-with-handle base ahead of its third-quarter financial report. The market's reaction to the company's report highlights the perils of buying a stock ahead of earnings or a proper buy point.
Elsewhere in the chip sector, shares of Texas Instruments (TXN) were down 0.6% to end the trading day at 95.82 Wednesday. The company issued its third-quarter report late Tuesday.
Dallas-based TI beat Wall Street's targets for third-quarter sales and earnings and it guided estimates higher for the current quarter.
TI stock received price-target hikes from at least six Wall Street firms on Wednesday. Of those, four have buy ratings and two have neutral ratings on the stock.
Jefferies was the most bullish of the bunch, reiterating its buy rating and upping its price target to 111 from 110.
"Our sense is that the Street views the upside (in TI's report) as 'peakish,'" Jefferies analyst Mark Lipacis said in a report. "We would use weakness (in the stock) as a particular buying opportunity."
Mizuho Securities analyst Vijay Rakesh rates TI as neutral, but raised his price target to 96 from 85. While TI continues to execute well with good gross margins and free cash flow, it trades at a premium to its peers, he said.
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