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Semiconductors have become increasingly important since the onset of the artificial intelligence (AI) era. The demand for graphics processing units (GPUs) continues to rise to handle the large-scale computations required by AI.
Semiconductor company Advanced Micro Devices (AMD), also known as AMD, is known for its innovative products and competitive stance against industry giants like Intel (INTC) and Nvidia (NVDA). AMD has experienced impressive growth in recent years.
AMD's growth is accelerating as it incorporates AI into its offerings. AMD stock was one of the best performers in 2023, rising 127.5% and outperforming the S&P 500 Index ($SPX), which gained 25%. However, the company's stock has increased by just 4.5% so far this year, compared to the 19.8% gain in the tech-heavy Nasdaq Composite ($NASX).
Nonetheless, Wall Street rates the stock as a “strong buy,” and expects it to rally by 72% this year if the high price target is met. With AMD set to report its second-quarter earnings results on July 30, let’s find out if another strong quarter can make it happen.
About AMD Stock
AMD, founded in 1969, is a semiconductor company that manufactures innovative processors and graphics cards that power everything from personal computers and gaming consoles to cloud servers.
The company’s Ryzen and EPYC processors and Radeon graphics cards have been well-received. This led to AMD's Data Center business revenue jumping 80% year over year to $2.3 billion in the first quarter of 2024. Plus, the Client segment's revenue also surged 85% to $1.4 billion.
According to management, the “ramp of MI300 AI accelerator shipments” and the growing adoption of “Ryzen and EPYC processors” drove both segments' outstanding performance in the quarter.
However, AMD’s Gaming segment fell 48%, while the Embedded segment declined 46% from the prior-year quarter. Overall, AMD’s revenue saw a surge of 2% to $5.4 billion, while adjusted net income totaled $1.0 billion. Comparatively, AMD reported a loss of $970 million in Q1 fiscal 2023.
Discussing the Q1 results, AMD's EVP, CFO, and Treasurer Jean Hu stated that the company is “well positioned to continue driving revenue growth and margin improvement while investing in the large AI opportunities ahead.”
Raising the Stakes In The AI Race
AMD has wisely formed strategic alliances with leading technology companies such as Super Micro Computer (SMCI), Lenovo (LNVGY), Sony (SONY) Semiconductor Solutions, and Dell Technologies (DELL) to broaden its AI solutions for the cloud, enterprise, automotive, embedded, and PC markets.
The company's balance sheet is in good shape, with manageable debt and a strong cash position. As of the end of the first quarter, AMD had a debt-to-equity ratio of 0.04 and $5.9 billion in cash, cash equivalents, and short-term investments.
AMD unveiled a series of next-generation Ryzen processors in June, aimed at providing advanced AI experiences for PCs. The next-generation AMD Ryzen 9000 Series desktop processors are expected to boost "performance and efficiency for gamers, content creators, and prosumers." This could improve the Gaming segment's performance in the coming quarters.
The company announced in July that it would acquire Silo AI, a private AI lab based in Europe. The all-cash transaction is worth $665 million. It will give AMD access to Silo's AI-equipped scientists and engineers, allowing them to develop tailored and advanced AI models for a variety of applications.
AMD will release its second-quarter results on July 30. Management expects Q2 revenue of $5.7 billion, plus or minus $300 million, which is consistent with the consensus estimate.
Analysts covering the stock expect full-year revenue growth of 12.6% to $25.5 billion, with a further increase of 27.5% year over year in fiscal 2025. Analysts also expect earnings to rise 31.7% to $3.49 per share in fiscal 2024 and 57.9% YoY in fiscal 2025.
What’s Wall Street’s View on AMD Stock?
AMD has an overall “strong buy” rating. Of the 35 analysts that cover the stock, 28 rate it a “strong buy,” one has a “moderate-buy” rating, and six have a “hold” rating.
Its average target price of $197.78 implies the stock could surge by 28.4% from current levels. Its high target price of $265 implies the stock could rally by 72% over the next 12 months.
The Bottom Line on AMD
AMD's stock has been a standout performer, thanks to strong financials, competitive product offerings, and strategic market positioning. Its Data Center and Client segments are already thriving. With the help of next-generation Ryzen processors, the gaming segment could soon experience explosive growth.
The semiconductor industry remains extremely competitive. However, AMD's emphasis on innovation and market expansion positions it well for future success. Looking at analysts' earnings projections for the next two years, I believe AMD stock will meet its high target price of $265, making it one of the best AI picks right now.
On the date of publication, Sushree Mohanty 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.
