AMD Didn't Give Wall Street the `Near-Perfect' Quarter It Wanted

(Bloomberg) -- Advanced Micro Devices Inc. earnings had a high bar to surpass. Based on Wall Street's reaction, the chipmaker fell well short.

The company's shares fell 20 percent Tuesday, the most in almost three years, after AMD forecast a sequential decline in adjusted gross margin for the current quarter. That damped bullish sentiment that sent the stock up 20 percent through the first four months of 2017 on bets its latest chip would bolster margins.

“Results clearly fell short of high expectations the stock was reflecting,” Macquarie Capital analyst Srini Pajjuri wrote in a note to clients. “Valuation still implies significant share gains as well as margin expansion, which we believe will prove to be a challenge.” Pajjuri downgraded the stock to underperform from neutral.

Here's a roundup of what others on Wall Street are saying:

Susquehanna Financial Group

Analyst Christopher Rolland says AMD didn't deliver on high expectations:

“AMD's new products are beginning to accelerate growth, but perhaps without all the gross margin benefits we had hoped for. The ~30 percent ramp in shares over the last 3 months required a near perfect quarter, but results fell a bit short. Despite the solid guide and constructive Ryzen commentary, bears are likely to focus on the company's disappointing gross margin guidance.”

Goldman Sachs Group Inc.

Analyst Toshiya Hari said the stock is priced for perfection.

“We believe the gross margin guide, in particular, was a disappointment as expectations, founded on the launch of Ryzen (desktop CPU) in March, were high into the print. AMD stock remains a ‘show me' story as the market has, in our view, pre-traded the expected improvement in market share, gross margins and ultimately EPS.”

MKM Partners

Analyst Ruben Roy said the gross margin view was disappointing but not surprising.

“While we do not find lumpy gross margin performance all that surprising as AMD transitions into a number of new product launches, we do understand investor disappointment with a step back given the buzz around Ryzen. We expect more clarity on the company's longer-term gross margin target range at AMD's analyst meeting in two weeks. The report and outlook did not change anything fundamental to the AMD story, in our mind.”

To contact the reporter on this story: Beth Mellor in New York at bmellor@bloomberg.net.

To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Jeremy Herron