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Advanced Micro Devices (AMD), more popularly known as AMD, the semiconductor giant, recently held its AI event “Advancing AI,” where two specific launches grabbed attention - the Instinct MI325X and the Ryzen AI PRO 300 Series processors.
First up is the Instinct MI325X, its new artificial intelligence (AI) chip. Slated to begin production before the end of 2024, the new chip aims to gain market share of the lucrative data center GPUs space (forecast to reach $500 billion by 2028, according to the company), which is currently dominated by Nvidia (NVDA). Meanwhile, the new Ryzen AI PRO 300 Series processors is aimed at the PC market.
However, not everyone was enthused by the launch, with some hoping for more new details. Oppenheimer analyst Rick Schafer called the unveiling "largely uneventful." That's because AMD management "recapped already well-understood CPU/GPU product road maps," he said in a client note.
Along similar lines, TD Cowen analyst Joshua Buchalter commented, "Lack of a splashy new data center GPU (graphics processing unit) customer or revenue target potentially disappoints some (misplaced) investor expectations."
However, the overall analyst community remains in AMD's corner, with most brokerage firms giving it their top rating, and an average price target that suggests significant upside potential from current levels. Here's a closer look.
AMD's Robust Fundamentals
AMD has been growing at a healthy clip over the past 10 years, with revenues and earnings compounding at CAGRs of 14.73% and 32.53%, respectively. This has led to the company commanding a sizeable market cap of $252.5 billion.
Although the stock has been an underperformer in 2024, rising only 5.8% so far, AMD is up an impressive 377.7% in the past five years.
AMD's results for the second quarter were noteworthy, as well, with both revenue and earnings surpassing consensus estimates. AMD grew its revenues by 9% in Q2 2024 to $5.8 billion, while adjusted EPS rose 19% to $0.69, beating the consensus estimate of $0.68. Over the past 15 quarters, AMD has beaten analysts' EPS estimates on 13 occasions.
Net cash from operating activities came in at $593 million, up 56.5% from the previous year. The company closed the quarter with a cash balance of $4.1 billion, with no short-term debt on its books.
Moreover, analysts are forecasting industry-beating growth in revenue and earnings for AMD, as well. While forward revenue growth for the chip specialist is pegged at 11.63%, earnings are expected to surge by 60.15%, compared to the sector medians of 6.30% and 7.34%, respectively.
AI and Data Center Prowess
AMD reported record data center segment revenues in the latest quarter at $2.8 billion, accounting for almost half of its total revenues. In fact, the segment more than doubled its revenues from the prior year, up 115%, aided by strong demand for its AMD Instinct GPUs and 4th Gen AMD EPYC CPUs. Further, the Instinct MI325X is expected to boost its data center sales further.
Notably, AMD's data center products are seeing increased adoption as major cloud providers like Microsoft (MSFT) and Google (GOOG) deploy its 4th-generation EPYC CPUs. Additionally, AMD stands to benefit from a growing opportunity in the AI accelerator market, as Nvidia's (NVDA) Blackwell GPUs face supply shortages, with orders fully booked for the next year.
In AI, AMD's recent acquisition of Silo AI is a strategic move that is expected to reap benefits in the long term for AMD. Silo AI has been a pioneer in scaling large language model training on LUMI, Europe’s fastest supercomputer, powered by over 12,000 AMD Instinct MI250X GPUs. Plus, Silo AI's impressive customer base includes AMD's competitor Nvidia, giving the company a considerable boost in the AI solutions race. The buyout of Silo AI will also provide AMD with another revenue stream from deployed AI solutions, separate from its hardware solutions.
Beyond hardware, AMD is strengthening its software capabilities, particularly through its ROCm open-source platform. Over the past 10 months, ROCm has seen substantial performance improvements, with version 6.2 delivering 2.4x gains in AI inferencing and 1.8x in training compared to previous versions. Its compatibility with widely-used AI frameworks, like PyTorch and TensorFlow, has made it easier for customers to adopt AMD's solutions.
Finally, AMD also enjoys a dominant position in the gaming console processors market, with an 83% share. Notably, AMD is currently the world's leading chip designer as far as chiplet architecture and 3D stacking are concerned, adding diversity to its portfolio.
What's the Analyst Forecast for AMD Stock?
Given the company's rapidly expanding AI credentials and diversified semiconductor portfolio, it's no surprise that analysts have deemed AMD stock a “Strong Buy,” with a mean target price of $193.06. This indicates an expected upside potential of about 23.7% from current levels.
Out of 37 analysts covering the stock, 30 have a “Strong Buy” rating, 1 has a “Moderate Buy,” and 6 have a “Hold” rating.
Valued at a price/earnings-to-growth (PEG) ratio of 1.12, on an adjusted basis, compared to Nvidia's 1.26, AMD looks like a reasonably valued AI chip stock to grab at current levels.
On the date of publication, Pathikrit Bose 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.
