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Advanced Micro Devices (AMD) stock is down about 2% year-to-date, significantly underperforming the S&P 500 Index’s ($SPX) approximately 15.8% return. Even more notable is AMD’s lag behind its peer Nvidia (NVDA), whose stock has surged by around 140% year-to-date.
The semiconductor company focuses on a wide range of products, including server microprocessors, or CPUs, graphics processing units (GPUs), data processing units (DPUs), accelerated processing units (APUs), and related items. Despite this extensive portfolio, AMD’s lower growth rate has frustrated investors, and restricted the upside in its stock price.
A significant factor is AMD’s relatively low market share in the lucrative artificial intelligence (AI) niche compared to Nvidia. Additionally, AMD faces tough competition in the CPU market. At the same time, macroeconomic challenges and softness in the Gaming segment remain a drag. These factors have exerted pressure on AMD's financial performance and stock price.
Nonetheless, AMD recently delivered impressive second-quarter (Q2) financials. Moreover, its management’s commentary around AI-related revenues was quite optimistic. The semiconductor company also raised its 2024 data center GPU revenue target. It now expects data center GPU revenue to cross $4.5 billion in 2024, up from the previous guidance of $4 billion.
This combination of year-to-date weakness in AMD stock and a promising growth outlook for the second half of 2024 provides an attractive entry point at current levels.
With this background, let’s explore why AMD stock could deliver above-average returns in 2H 2024.
6 Reasons Why AMD Stock Could Outperform in 2H 2024:
- Strong Q2 Results: AMD had a great second quarter. Its revenue jumped by 9% compared to last year, reaching $5.8 billion. This growth was mainly because of higher GPU shipments in the Data Center segment and AMD Ryzen processors in the Client segment. AMD also increased its gross profit margin by over 300 basis points and saw its earnings per share (EPS) grow by 19%.
- Growth to Accelerate in 2H: AMD is well-positioned to grow revenues significantly in the second half of the year, driven by the momentum in its Data Center and Client segments. Its data center GPU business is booming, with shipments increasing across a broader customer base. It’s worth noting that AMD reported its third consecutive quarter of record data center GPU revenue, with MI300 quarterly revenue surpassing $1 billion for the first time. Also, Microsoft (MSFT) is expanding its use of MI300X Accelerators, which is encouraging. Plus, AMD is witnessing strong demand for its next-generation Zen 5 EPYC and Ryzen processors. These processors deliver improved performance and efficiency in both Data Center and Client workloads, providing a solid base for future growth.
- Expanding Customer Pipeline: AMD’s customer base is growing, with hyperscalers using its fourth-generation EPYC CPUs more extensively. AMD’s enterprise and Cloud AI customer pipeline expanded in Q2. The company is collaborating with system and cloud partners to increase the availability of MI300 solutions to meet the growing demand. Impressively, over one-third of AMD’s enterprise server wins in the 1H 2024 came from new customers deploying EPYC in their data centers for the first time. This shows AMD’s success in attracting new customers. Moreover, it continues to expand its footprint with existing customers.
- Future Product Launches: AMD is ramping up its product offerings, starting with the launch of MI325X later this year. This new product will offer twice the memory capacity and higher computing performance than competitors, driving demand. AMD also plans to release the MI350 series in 2025, which will deliver a significant increase in performance with the new CDNA 4 architecture.
- Opportunities in AI: The rapid growth in generative AI and more advanced models are driving the need for increased computing power across all markets. AMD is seeing strong growth opportunities in this area and is investing heavily in hardware, software, and solutions. The company aims to deliver top-tier data center GPU hardware, integrate leading AI capabilities into its products, enhance its software capabilities, and provide turnkey solutions for the faster deployment of AMD-based AI systems. These efforts will enable AMD to grow its share in the AI sector.
- Acquisitions and Investments to Support Growth: AMD recently announced the acquisition of Silo AI, which is Europe’s largest private AI lab. Silo AI’s ability to develop tailored AI solutions for enterprise and embedded customers will enhance AMD’s capabilities to service large customers aiming to optimize their AI solutions for AMD hardware. Silo’s expertise in large language model (LLM) development will also help AMD accelerate the optimization of its inference and training solutions. Alongside acquisitions of Silo AI and Nod.ai, AMD has invested over $125 million in a dozen AI companies over the past year to expand its AI ecosystem and solidify its competitive positioning in computing platforms.
The Bottom Line on AMD Stock
Despite its recent underperformance, AMD’s solid Q2 performance, strong growth potential, and strategic investments to solidify its competitive positioning in computing platforms make it an attractive stock for the second half of 2024.
Analysts echo this optimism, with most of them recommending AMD stock as a buy. Out of 35 analysts in coverage, 28 rate it as a “strong buy,” one as a “moderate buy,” and six as a “hold,” resulting in a consensus rating of “Strong Buy.”
The average price target for AMD stock is $197.78, suggesting a potential upside of approximately 37% from its current levels.
On the date of publication, Amit Singh did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
