Goldman Sachs Favors AMD And ARM, While Being Bearish On Intel

As the second-quarter earnings season for U.S. tech stocks is about to kick off, Goldman Sachs has released a research report on the prospects of AMD, ARM, and Intel, the three major U.S. semiconductor giants.

This week, Goldman Sachs analysts, including Toshiya Hari, released a report, maintaining a buy rating for AMD and ARM, and a sell rating for Intel.

Goldman Sachs expects AMD's second-quarter results and guidance to meet market expectations, with the data center business likely to achieve double-digit growth. ARM's second-quarter performance and guidance are expected to exceed market expectations, with a potential CAGR of revenue over the next three years reaching 23%. In contrast, Intel's second-quarter results and guidance may disappoint Wall Street, with its server CPU market share still being squeezed by peers.

AMD: Strong Expansion In Data Center Business

AMD is set to announce its second-quarter financial report on July 30th. Wall Street expects AMD to achieve revenue of $5.72 billion in the second quarter, a year-on-year increase of 6.7%, with adjusted earnings per share (EPS) of $0.68, a year-on-year increase of 18.0%. Revenue from the data center business is expected to surge by 108.6% year-on-year to $2.76 billion, with a sequential increase of 17.9%.

Goldman Sachs believes that AMD's second-quarter results are expected to be in line with market expectations, with the GPU business likely to achieve strong expansion.

Specifically, GS believes AMD's CPU business will grow from the previous quarter, with AIPC and enterprise PC update cycles partially offsetting the impact of weak demand in the consumer segment. Meanwhile, the data center GPU business will achieve strong sequential growth, with an expected double-digit increase.

Embedded business revenue will grow sequentially, but growth expectations may be moderated by weak demand in industrial, communication infrastructure, and automotive end markets, and the gaming business will continue to be weak, mainly due to inventory adjustments in semi-custom business (game console SoC) and weak demand for gaming GPUs.

Goldman Sachs writes that AMD management will emphasize an optimistic attitude towards AI during the earnings call and may raise the full-year data center GPU revenue forecast from the previous $4 billion to $4.5 billion. The second-quarter guidance is expected to be basically in line with market expectations.

For the above reasons, Goldman Sachs maintains a buy rating for AMD, with a 12-month target price of $175.

ARM: Q2 Performance and Guidance Could Exceed Market Expectations

ARM's second quarter will release its financial report right after AMD.

Wall Street expects ARM to achieve revenue of $905 million in the second quarter, a year-on-year increase of 34.0%, with adjusted EPS of $0.34, a year-on-year increase of 43.2%, and adjusted net profit of $358 million, a year-on-year increase of 45.7%.

Goldman Sachs expects ARM's second-quarter performance and guidance to exceed market expectations. Goldman Sachs' EPS expectations for the second and third quarters are $0.36 and $0.29, respectively, 6% and 7% higher than the market consensus.

The continuous transfer of licensing revenue from v8 to v9 architecture is expected to bring higher licensing revenue for ARM. In addition, ARM also benefits from the seasonal recovery of the smartphone terminal market, as well as the expansion of PC and cloud infrastructure businesses.

Goldman Sachs maintains a buy rating for ARM but sets a 12-month target price of $143.

Goldman Sachs believes that from the fiscal years 2025 to 2027, ARM's revenue is expected to achieve a CAGR of 23%, and the non-GAAP EPS (excluding stock-based compensation) CAGR will reach 29%, significantly higher than the industry median.

Intel: Server CPU Business Outlook May Not Be Optimistic

Intel's second-quarter financial report will be on August 1st. According to the Wall Street consensus, Intel's second-quarter revenue is expected to be $12.96 billion, a mere year-on-year increase of 0.09%, with adjusted EPS expected to be $0.103, a year-on-year decrease of 20.8%.

Compared to AMD and ARM, Goldman Sachs has a more pessimistic view of Intel.

Goldman Sachs expects Intel's second-quarter revenue to meet the market consensus, but the third-quarter revenue and non-GAAP EPS (excluding stock-based compensation) guidance will be slightly lower than market expectations.

According to GS, Intel's Client Computing Group (CCG) may perform positively due to initial AIPC shipments and the expected enterprise refresh cycle. Its Data Center and AI (DCAI) revenue will also grow sequentially, mainly driven by the cyclical recovery of server CPUs and the early growth of Gaudi accelerator revenue.

However, considering that Intel still faces fierce competition in the server CPU market, Goldman Sachs maintains a sell rating for Intel, with a 12-month target price of $29.

Goldman Sachs believes that the proliferation of AIPC and smartphones may drive the replacement cycle of these devices in the coming years, and the server CPU market is expected to see a cyclical recovery, but Intel's market share will continue to be squeezed by peers.