Advanced Micro Devices shares edged higher in early Monday trading after a key Wall Street analyst clipped the chipmaker's stock price target ahead of its second-quarter earnings report later this week.
Advanced Micro Devices (AMD) , which has lagged the broader chip stock performance this year as it struggles to capture market share from AI chipmaker Nvidia (NVDA) with its new MI300X offering, will publish June quarter earnings after the close of trading on Tuesday.
The stock, in fact, has been on a long run of declines since March, when reports suggested it was having difficulty getting permission to sell an AI chip designed for clients in China. It has been unable to revive investor sentiment since issuing a muted near-term outlook on the newly released MI300X in early May.
AMD's data center segment saw sales rise 80% to $2.3 billion over the first quarter, powered in part by the launch of its new MI300X, a graphics-processing unit designed to support generative artificial intelligence technologies.
But demand for some of its traditional server chips waned amid the rush to secure higher-end processors, pushing revenues for two of its three main reporting units – gaming and client – sharply lower over the three months that ended in March.
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Tradequotex.com analyst Corey Mitchell, in fact, argues that while the stock has had solid long-term performance, it's now "expensive in terms of recent earnings" with a PE ratio of around 230 times.
AMD stock facing 'uphill' battle
"From a technical perspective, AMD is also facing an uphill battle (and) the stock is still exhibiting some down-trending behaviors," Mitchell added.
Barclays analyst Tom O'Malley, however, thinks the stock has "over-corrected " and argues investors are likely to see the value of its $4 billion in projected MI300 sales this year despite being "more selective with AI exposures" of late.
LSEG data suggests AMD will post second-quarter earnings of 68 cents per share, a 17% increase from the same period last year, with revenue rising 6.8% to $5.72 billion.
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AMD, the clear number two in the AI chip market behind Nvidia, will also likely update investors on the demand path for the MI300. Tech analysts say it carries more memory with speed than Nvidia's top-selling H100.
AMD CEO Lisa Su told investors in late April that the new chip, which could challenge Nvidia's market dominance, will likely generate sales of around $4 billion this year, a modest $500 billion increase from its mid-January forecast.
MI300X outlook in focus
"Expectations for the MI300 are now at $5 billion for the year, and we would argue that's achievable even amidst a slew of negative Microsoft data points coming out of the supply chain," O'Malley said in a note published Monday. "If you had told us last December that AMD had $4 billion-plus in the bag, we would have been shocked."
That said, O'Malley lowered his AMD price target by $55 to $180 per share.
"We believe our ambitious $235 target for AMD has come and gone, but we perceive value in the stock at this level and update our scenario analysis, presenting a compelling case for at least $180," O'Malley and his team wrote.
AMD's near-term sales will likely be capped by reports of order cuts from Microsoft and performance issues tied to a high bandwidth memory chip, the HBM3, a key AI processing component.
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KeyBanc Capital Markets analyst John Vinh, however, is slightly more upbeat and sees solid MI300X demand and a source of "near-term upside as it continues to ramp."
"Accordingly, we expect management to increase its MI300X outlook to $4.5 billion for the year," said Vinh, who carries an 'overweight' rating with a $220 price target on the stock.
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"Street sentiment on the name is moderately positive, with bulls viewing AMD as a compelling second source play on AI offset by increasing concerns on its ability to be competitive with Nvidia AI," he added.
AMD shares were marked 1.65% higher in early Monday trading to change hands at $142.28 each, leaving the stock down around 3.5% for the year.
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