Elon Musk’s Endorsement and AMD’s Promising Future
Late on Friday, Tesla Inc. CEO Elon Musk made a surprising announcement, revealing that his company plans to purchase chips from Advanced Micro Devices (AMD) in addition to their existing spending plans with Nvidia. This endorsement from Musk has only added to the growing enthusiasm surrounding AMD’s MI300 AI accelerator. Susquehanna analyst Chris Rolland believes that this positive sentiment requires a reevaluation of forecasts around AMD’s data-center revenue from graphics processing units. While AMD previously projected revenue to exceed $2 billion by 2024, Rolland suggests that this number should be revised to “at least” $3 billion or potentially even higher.
Analysts’ Insights and Projections
Rolland’s insights are echoed by other analysts. BofA Securities analyst Vivek Arya highlights the significance of the upcoming quarterly report, specifically focusing on AMD’s MI300 AI accelerator expectations. He suggests that the company’s management may raise their expectations to align with consensus estimates ranging from $3 to $3.5 billion for calendar year 2024. Arya further emphasizes that each 1% share of the accelerator market would translate into 16 cents in earnings per share by 2025. However, he remains cautious, acknowledging the tough competition AMD faces from incumbents like Nvidia and customer chip partners.
The Importance of the AI Narrative and AMD’s Growth Potential
Analyst Stacy Rasgon points out that despite soft guidance and declining numbers in recent quarters, AMD’s stock price has more than doubled due to its association with the burgeoning AI narrative. Despite potential skepticism regarding core fundamentals, Rasgon believes that the AI narrative works in AMD’s favor for now. Setting conservative expectations for growth allows room for positive surprises. However, he maintains a target price of $120 for AMD, pointing out that it is currently the most expensive AI semiconductor stock, trading at about 46 times forward earnings per share.
Analysts’ Expectations for AMD’s Quarterly Results
Analysts, on average, anticipate adjusted earnings per share of 77 cents and revenue of $6.1 billion for AMD’s latest quarter. Forecasts reflect a projected 39% growth in data-center revenue, reaching $2.3 billion, along with a 71% growth in client revenue, reaching $1.5 billion. However, analysts are more conservative in their gaming revenue projections, anticipating a 25% decline to $1.2 billion. Embedded revenue is also expected to experience a 24% decline to $1.1 billion, according to analysts’ projections.