Wall Street eyes AMD’s prospects amid AI growth By Investing.com

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<p><em>Explore Wall Street’s expert insights with this ProResearch article, which will exclusively be available to </em><em>InvestingPro</em><em> subscribers soon. Enhance your investment strategy with ProPicks, our newest product featuring strategies that have outperformed the S&amp;P 500 by up to 700%. This Cyber Monday, enjoy up to 60% off, plus an extra 10% off a 2-year subscription with the code </em><strong><em>research23</em></strong><em>, reserved for the first 500 quick subscribers. To ensure ongoing access to valuable content like this, step up your investment game with InvestingPro.</em></p>
<h2> Introduction</h2>
<p>Advanced Micro Devices, Inc. (NASDAQ:) has been a focal point of Wall Street analysis over recent months. With its broad portfolio of microprocessors, graphics processors, and embedded/semi-custom chips, AMD has carved out a significant place in the competitive semiconductor industry. The company’s performance in different markets and segments, along with its strategic moves and potential external impacts, is of keen interest to investors.</p>
<h2> Company Overview</h2>
<p>AMD’s product lines cater to diverse segments, including desktops, notebooks, servers, graphics, and embedded systems. The company has recently made strides in AI with its MI300 accelerator, indicating a strong forward-looking approach. However, AMD faces challenges in embedded and gaming segments, where declines are expected. The competitive landscape includes heavyweights like Intel (NASDAQ:) and Nvidia (NASDAQ:), with market trends showing a shift towards accelerators and ARM’s increasing presence in the PC market.</p>
<h2> Market Performance and Strategy</h2>
<p>Analysts have noted AMD’s solid performance in client PC demand and data center CPU sales. The company’s third-quarter revenue for 2023 was reported at $5.80 billion, marking an 8% quarter-over-quarter increase and a 4% year-over-year increase. Non-GAAP earnings per share (EPS) for Q3 2023 were $0.70, surpassing both the firm’s estimate of $0.57 and the consensus of $0.68. The company is also involved in plans to create Arm-based CPUs for Windows PCs, signaling a strategic move to diversify its offerings.</p>
<h2> Competitive Landscape and Market Trends</h2>
<p>AMD’s competitive positioning is strong, with its Zen-based EPYC processors expected to take significant market share from Intel’s DCAI business. Share gains in high-performance desktops, notebooks, and servers are anticipated, along with gross margin improvements from a richer mix of data center and embedded segment growth. However, the company faces the risk of share loss in consumer PC MPU and discrete graphics, along with potential aggressive pricing by Intel in PCs and servers. Recent analysis indicates AMD’s discrete graphics market share increased year-over-year to 10.9%, mainly due to a significant gain in desktops, despite a loss in notebooks. Quarterly changes were minimal, with a slight overall gain. In the data center market, AMD’s revenue remained flat quarter-over-quarter at $40 million and saw an 11% decrease year-over-year.</p>
<h2> Regulatory Environment and Customer Base</h2>
<p>The regulatory environment for semiconductor companies like AMD is complex, with trade tensions and supply chain issues playing a role in market dynamics. AMD’s customer base is diverse, spanning computing OEMs, data centers, and consumer electronics industries.</p>
<h2> Management and Strategy</h2>
<p>AMD’s management has been executing a strategy focused on growth in AI and data center segments. The company is preparing for significant supply increases for its MI300 series to meet an expected demand surge. Management’s guidance for AI portfolio partnerships and new product launches is a testament to their forward-looking strategy.</p>
<h2> Potential Impacts of External Factors</h2>
<p>The semiconductor industry is subject to various external factors, including economic cycles, trade policies, and technological shifts. AMD is not immune to these, with corrections in end markets like auto/industrial/data center posing risks. Additionally, the stabilization of the PC market and growth forecasted for PCs in 2024 could impact AMD’s performance.</p>
<h2> Upcoming Product Launches</h2>
<p>AMD is gearing up for several product launches, including its involvement in creating Arm-based CPUs for Windows PCs. The company’s MI300 accelerator is also a significant upcoming product, with guided sales of $400 million in Q4 expected and $2 billion+ in CY24.</p>
<h2> Stock Performance</h2>
<p>AMD’s stock performance has been a topic of interest, with the company’s stock seeing a 52-week high of $132.83 and a low of $58.03. Analysts have set various price targets ranging from $110 to $200, reflecting different perspectives on the company’s future performance.</p>
<h2> Analyst Outlooks and Reasonings</h2>
<p>Analysts have consolidated their views on AMD, with many maintaining a positive outlook despite some sector-specific challenges. The company’s ability to execute its growth strategy and capitalize on market opportunities, particularly in AI and data center segments, has been highlighted as key drivers for future success.</p>
<h2> Bear Case</h2>
<h3> Is AMD’s gaming and embedded segments’ decline a cause for concern?</h3>
<p>The bear case for AMD centers on the expected sequential declines in Embedded and Gaming segments due to inventory and cyclical weaknesses. While the company is positioned well in other areas, these declines could impact overall performance and profitability. The late-cycle decline in gaming consoles and inventory correction in embedded FPGAs due to slowing demand are significant factors contributing to this bearish perspective.</p>
<h3> Will AMD’s competitive positioning be challenged by new market entrants?</h3>
<p>Another bearish angle is the potential challenge to AMD’s x86 Total Addressable Market (TAM) from the shift toward accelerators and ARM’s inroads into the PC market. Aggressive pricing/promotion by Intel and Nvidia’s dominance in AI could limit AMD’s opportunities, and there are concerns over potential mis-execution on product launches.</p>
<h2> Bull Case</h2>
<h3> Can AMD capitalize on its strong data center and AI prospects?</h3>
<p>The bull case for AMD is driven by the company’s strong data center GPU revenue projections and share gains in the CPU market. With significant growth expected in high-end desktop and notebook segments, along with the introduction of the MI-300/AI, AMD’s revenue is poised to increase substantially starting in CY24. The company’s lead over competition with its product roadmap and potential for significant server market share gains with the EPYC family support this optimistic view.</p>
<h3> Will AMD’s strategic moves in AI and product launches drive growth?</h3>
<p>AMD’s strategic focus on AI and upcoming product launches, such as the MI300 accelerator, are expected to contribute to its growth trajectory. The company’s preparedness for higher supply for MI300 than the targeted $2 billion for 2024, due to better-than-expected performance, efficiency, and design win momentum, underpins the bullish case. Additionally, strong demand for Ryzen processors and record server sales in Client and Data Center segments support the positive outlook.</p>
<h2> SWOT Analysis</h2>
<p>Strengths:</p>
<p>– Strong performance in Data Center and client PC units.</p>
<p>– Solid traction for Zen 4 products and high interest in AI accelerator products.</p>
<p>– Expectation of over $2.0B in AI revenue in CY24.</p>
<p>Weaknesses:</p>
<p>– Late-cycle decline in gaming consoles.</p>
<p>– Inventory correction in embedded FPGAs due to slowing demand.</p>
<p>– Soft guidance for Embedded revenue in upcoming quarters.</p>
<p>Opportunities:</p>
<p>– Growth in AI and data center segments.</p>
<p>– Market share gains from new product launches.</p>
<p>– Diversification into Arm-based CPUs for Windows PCs.</p>
<p>Threats:</p>
<p>– Competitive pressures from Intel and Nvidia.</p>
<p>– Market shifts towards accelerators and ARM-based solutions.</p>
<p>– Cyclical and inventory-related challenges in gaming and embedded segments.</p>
<h2> Analysts Targets</h2>
<p>– BofA Global Research: Neutral, $120.00 (November 01 2023).</p>
<p>– Jefferies: BUY, $130.00 (November 01 2023).</p>
<p>– unknown firm: Buy, $200.00 (November 01 2023).</p>
<p>– Stifel: Buy, $145.00 (November 01 2023).</p>
<p>– Wolfe Research: Outperform, $150 (November 01 2023).</p>
<p>– Northland Capital Markets: No specific rating, $130.00 (November 01 2023).</p>
<p>– Piper Sandler: Overweight, $150.00 (November 01 2023).</p>
<p>– Morgan Stanley: Overweight, $128.00 (November 01 2023).</p>
<p>– BMO Capital Markets: Outperform, $123.85 (November 30 2023).</p>
<p>– Citi Research: Buy, $136.00 (October 10 2023).</p>
<p>– Wells Fargo Securities: Overweight, $150.00 (October 16 2023).</p>
<p>This article has utilized analyses from various firms, with the newest to oldest dates of analysis spanning from November to October 2023.</p>
<h2>InvestingPro Insights</h2>
<p>Advanced Micro Devices, Inc. (AMD) has been under the microscope of investors and analysts alike, with its stock price movements and financial metrics being critical to understanding its current position and future potential. According to InvestingPro data, AMD has a market capitalization of $194.44 billion, indicating its significant presence in the semiconductor industry. Despite a recent decline in earnings per share, the company’s net income is expected to grow this year, as reflected in the InvestingPro Tips. This growth expectation could be a driving factor for investors considering AMD’s stock for their portfolios.</p>
<p>The company’s price-to-earnings (P/E) ratio stands at a high 937.21, with an adjusted P/E ratio for the last twelve months as of Q3 2023 at 921.83. This high multiple suggests that investors are willing to pay a premium for AMD’s shares, possibly due to its strong market position and future growth prospects. However, it’s important to note that AMD is trading at high valuation multiples, both in terms of EBITDA and revenue, which could be a point of concern for value-focused investors.</p>
<p>InvestingPro Tips highlight several key points for AMD, including its high earnings quality, with free cash flow exceeding net income, and the fact that it operates with a moderate level of debt. These factors, coupled with the company’s liquid assets exceeding short-term obligations, provide a picture of financial stability and the potential for sustained growth. For investors looking to delve deeper into AMD’s financials and stock performance, there are 33 additional InvestingPro Tips available, offering a comprehensive analysis of the company’s prospects.</p>
<p>For those interested in taking advantage of this wealth of information, InvestingPro is currently offering a special Cyber Monday sale with discounts of up to 60%. Plus, subscribers can get an extra 10% off a 2-year InvestingPro+ subscription by using the coupon code <b>research23</b>. This promotion is an excellent opportunity for investors to access exclusive insights and enhance their investment strategies.</p>
<p>The next earnings date for AMD is set for January 30, 2024, which will be a pivotal moment for the company as it will provide updated financials and potentially impact the stock’s trajectory. With the InvestingPro subscription, investors can stay ahead of the curve and make informed decisions based on the latest data and expert analysis.</p>
<p><em>This article was generated with the support of AI and reviewed by an editor. For more information see our T&amp;C.</em></p>
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