Advanced Micro Devices, Inc. (NASDAQ:AMD) shares dropped Wednesday after the chipmaker’s second-quarter revenue and earnings declined sharply year-over-year, but analysts remain bullish.
Baird and UBS each put out reports Wednesday reiterating Outperform and Buy ratings, respectively, along with price targets of $170 and $150. Shares of AMD fell 7% Wednesday to $109.35.
For the quarter, the chipmaker posted revenue of $5.36 billion, down 18% from $6.55 billion a year earlier but topping Street expectations of $5.32 billion. Adjusted earnings were $0.58 per share, down 45% from $1.05, but ahead of a forecast consensus of $0.57.
Looking forward, both analyst firms point to gross margins as a key figure to watch, particularly as the company moves into the artificial intelligence (AI) space.
“We believe AMD could get 15% share in generative AI medium term, while we target [the AMD brand] EPYC market share to reach 40% exiting 2024, based on channel feedback,” Baird analysts wrote. “AI engagements increased greater than 7x sequentially in the quarter.”
Furthermore, AMD’s MI300 — a powerful processor made up of 13 chiplets — is expected to launch in the fourth quarter. This represents a major foray into AI, as AMD’s intention is for MI300 to jockey with the Nvidia H100 in terms of training and running large language models.
That represents a huge opportunity, UBS analysts argue. The firm models $1.8 billion in MI300X revenue for 2024 and expects GPU unit demand in the 300,000 to 400,000 range.
“WIth Meta and Amazon taking shipments starting early 2024 — even if AMD offers a heavy discount to Nvidia, this could be a major upside lever to our model, and AMD also reaffirmed that this will be accretive to corporate margins.”
Baird analysts agree.
“The depth and breadth of AMD's AI opportunity (all major US cloud suppliers pushing to get product ASAP) and a rapidly broadening product portfolio from data center all the way to the edge still convince us that this stock has more room to run — especially as MI300X ships later this year and cloud customers prove out the ROI for their AI investments in general.”
AMD issued third-quarter revenue guidance of $5.70 billion, short of the consensus estimate of $5.82 billion. Its gross margin guidance of 51% is just below the consensus of 51.3%.
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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