Advanced Micro Devices got a show of support last week when Elon Musk said he would buy its chips to power artificial-intelligence efforts at Tesla. Wall Street is betting its earnings will provide further proof of AMD’s AI chip potential.
AMD
stock was up 0.1% at $177.36 in early trading on Monday, failing to build on momentum seen after the close on Friday, when Musk said on social-media platform X that
Tesla
would buy the company’s chips. The EV maker will also spend more than $500 million on
Nvidia
hardware this year.
Musk didn’t give a comparable figure for potential spending on AMD’s products but it still looked like good news for its MI300 data-center chips, the company’s main AI hardware offering. There could be more good news coming.
AMD will report its fourth-quarter earnings on Tuesday and most of the attention will be on its financial forecasts. AMD CEO Lisa Su has said she expects the MI300 chip to generate around $2 billion in revenue in 2024. Susquehanna analyst Christopher Rolland thinks that could be raised to more than $3 billion at the least, with potential for around $6 billion.
“Our experts suggest AMD’s software capability has significantly improved their competitiveness vs. [
Nvidia
software] CUDA, which has been a hindrance in the past,” Rolland wrote in a research note on Monday.
Rolland raised his target price on the stock to $210 from $170, keeping a Positive rating.
Rolland isn’t alone in his optimism. Stifel analysts led by Ruben Roy last week upgraded their target price on AMD to $200 from $170, while reiterating a Buy rating on the stock. They also focused on the potential for the MI300 chip.
“While our MI300 assumption remains near AMD’s guidance for 2024 at roughly $2 billion, we believe that improving supply, coupled with strong ongoing demand, could result in meaningful upside as 2024 progresses,” Stifel’s Roy wrote.
The analysts’ target prices imply a hefty trailing price-to-earnings multiple of at least 75 times for AMD, which is forecast to report full-year earnings of $2.66 a share for 2023, according to the consensus call on FactSet. However, that ratio could decline quickly if profits rise as AMD cements its position as the chief alternative AI chip supplier to Nvidia. AMD is expected to nearly double its annual earnings to $5.23 a share in 2025, according to FactSet.
If AMD does raise its chip guidance, it will be striking a different note from
Intel,
which tumbled last week. Management issued a disappointing forecast for revenue for the current quarter that suggested it had made few inroads into the AI data-center market.
Bank of America analyst Vivek Arya said AMD taking market share from Intel could be another reason for optimism around the stock. He said AMD likely gained share in central processing units for servers in the final quarter of 2023 and will likely do so again this year. Arya said AMD could achieve 29% annual sales growth, or around double Intel’s growth rate in the same business area.
Arya raised his target price on AMD to $195 from $165 and kept a Buy rating on the stock.
Intel shares were down 0.7% in early trading on Monday, adding to their 12% loss on Friday. Nvidia shares were up 0.7%.
Write to Adam Clark at [email protected]
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