Advanced Micro Devices (NASDAQ: AMD) met expectations with its first-quarter report last month, but overall growth wasn’t what investors really wanted. While data center and PC revenues surged, driven by increased demand for artificial intelligence and a recovery in the PC market, the tumbling revenue in the gaming and embedded segments offset those gains. With that being said, many Wall Street firms still think that AMD is a great AI player as the market stabilizes, and one of those firms is Jefferies, which recently upgraded their price target for AMD stock. Additionally, there are two new collaborations AMD announced recently, which rely on the company’s new Instinct MI300X accelerator.
Jefferies’ Take on AMD Stock
Jefferies analyst Blayne Curtis recently wrote in a research note that he expects AMD to benefit from a strong upcycle in the semiconductor market and soaring demand for AI chips. In fact, the AI chips market, which was valued at $23 billion in 2023, is set to grow by 30% in 2024, before soaring to more than $150 billion by 2030. This is why Curtis has a “Buy” rating on AMD stock, and a $190 price target, which represents an upside of 15.52% from the current trading level.
There’s no denying that AMD’s main competitor, Nvidia (NASDAQ: NVDA), has benefited the most from soaring demand for AI chips. However, AMD is starting to catch up with the company’s latest MI300 family of data center GPUs, which surpassed $1 billion in revenue since its launch, and is now expected to bring in $4 billion in revenue this year. AI can also drive demand in other areas, and as companies invest in AI chips, they’ll need other data center hardware, and in the data center market AMD is in a strong position. In fact, AMD’s data center division sales are up 80% year over year, hitting a record $2.3 billion in Q1 2024.
Additionally, the data center segment’s operating income surged to $541 million during the same time last year, a stunning leap from $148 million and operational income increased from 11% to 23% of revenue in the preceding year. The significant increase in operating income indicates AMD’s enhanced profitability and operational edge in the data center business. Overall, despite large expenditures on marketing and research to capitalize on AI’s potential, AMD still raised operational income by more than threefold.
AMD’s New Partnerships
AMD recently announced that Optiver, a market maker trading on more than 100 exchanges, is using a broad range of AMD high-performance compute engines to help further its mission of improving financial markets by building a modern infrastructure that serves as the backbone of the organization. Optiver is addressing technical challenges in capital markets to build systems that make financial markets more advanced, using AMD EPYC processors, AMD Solarflare Ethernet adapters, AMD Virtex FPGAs and AMD Alveo adaptable accelerators.
Moreover, AMD announced another collaboration with Eviden, a business unit of the Atos Group specializing in advanced computing. They have announced the release of the BullSequana AI 600, a mid-range artificial intelligence server family. This new series features the AMD Instinct MI300X accelerator and targets businesses requiring 8 GPU servers for AI development. Additionally, it aims to provide a balance between cost and performance, ensuring customers receive value for their investment. It boasts substantial compute capabilities and is designed to assist developers, data scientists, and researchers in advancing innovation and computation.
AMD’s innovative technologies are being adopted by major players in the financial and technology sectors to advance their capabilities, which helps AMD establish itself as one of the leading companies in the AI market.
AMD’s Increasing Market Share
AMD is also becoming a leader in the supercomputer market. According to Wells Fargo analysts, AMD, as well as Nvidia, are expanding their presence in high-end supercomputing at a steady pace, which is a key indicator of competitive positioning in the semiconductor space. AMD’s share gains are obvious, with 157 supercomputer systems based on the AMD EPYC CPUs, up from 140 in November 2023, 121 in June 2023, and 101 in November 2022. Comparatively, there are 196 systems currently using Nvidia’s GPUs.
AMD EPYC CPU cores expanded to 26%, up from around 24% and 20% in the November 2023 and June 2023 lists, respectively. This is a big opportunity for AMD, because the supercomputer market is set to hit $25 billion by 2032 at a compound annual growth rate of 11%. Therefore, even capturing just 10% of this market could add $2.5 billion to AMD’s revenue by 2032.
When it comes to AMD’s main market, the PC market, AMD still has a lot of room to grow, especially as big AMD customers like Microsoft push AI for PCs. AMD increased its share in this market by 4.7% year-on-year, giving it 23.9% of the x86-based desktop market. Also, AMD’s share of revenue from desktop PC sales was 19.2%, up from 15.4% a year earlier. Moreover, AMD’s share of the laptop market increased from 16.2% in the first quarter of 2023 to 19.3% in the first quarter of 2024.
In addition, revenue in AMD’s client segment, which includes CPU sales income, increased by 85% to $1.4 billion. This increase represents improvements in the PC market, which could fuel growth in the foreseeable future.
The Bottom Line
AMD’s business has exploded over the past decade, with its stock skyrocketing nearly 4,000%. The company’s CPU market share rose from 18% in 2017 to 33% this year. AMD is also in better financial standing with free cash flow of $1 billion, which suggests that the company has the financial resources to keep investing aggressively in growth initiatives, especially in AI.
While the technical analysis might not be promising, there’s more to a stock and a company than a chart, and AMD bears aren’t seeing the huge growth prospects that this company has. In fact, AMD stock was trading below the 50 and 200 last year in October but it still skyrocketed. Therefore, what you need to do if you’re thinking about investing in AMD is do your own due diligence and trust your gut.
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