AMD Stock Is Driven by AI. How Analysts See It Measuring Up to ...

2 Aug 2023

Barron's

AMD Stock Is Driven by AI How Analysts See It Measuring Up to

AMD stock is now set to be driven by its success in AI chips. But analysts are split on how much market share it can take from Nvidia.

AMD’s MI300 series of chips will take on Nvidia’s A100 and H100 products. Photograph by Sam Yeh/AFP/Getty Images

Advanced Micro Devices stock is being driven by its prospects of taking on Nvidia in the market for artificial-intelligence semiconductors. Wall Street analysts are split on its prospects.

AMD (ticker: AMD) posted solid earnings Tuesday and the stock was rising in premarket trading Wednesday. The gains came despite guidance that fell short of expectations as investors focused on its future in AI chips.

The narrative around AMD now depends on the success of its MI300X chip, set to launch in the fourth quarter of this year, which will take on Nvidia’s (NVDA) graphics-processing units for market share in powering AI technology.

For analysts at Citi , the latest news was positive.

“We thought AMD’s AI products (MI300) would be margin dilutive and investors would eventually care about the expensive valuation on AMD, and we were wrong on both counts,” Citi’s Christopher Danely wrote in a research note.

Danely raised his rating on AMD stock to Buy from Neutral and his target price on the stock to $136 from $120. He said the new target was based on a price-to-earnings multiple of 40 times AMD’s forecast 2024 earnings, based on its server share gains and AI opportunity.

AMD shares were rising 1.4% to $119.32 in premarket trading on Wednesday, after closing up 2.8% the previous day.

KeyBanc’s John Vinh also was optimistic, calling for a meaningful ramp-up of MI300X deliveries next year and around $2 billion in GPU revenue. Vinh maintained a $160 target price for AMD and an Overweight rating on the stock.

“We are firm believers in AMD’s revitalized product road map strategy, and product traction is compelling. However, expectations for share gains and growth are high,” Vinh wrote in a research note.

AMD Chief Executive Lisa Su told analysts on an earnings call that she expects there will be “multiple winners” in the AI chip race and that the company is investing in its software capabilities – a key advantage for Nvidia currently.

Analysts have largely predicted Nvidia will remain the dominant AI chip player for years to come, although its market share could come down from current levels of around 90%. AMD is generally expected to take second place ahead of Intel (INTC).

“We see an uphill battle for MI300 AI share gains vs. NVDA’s leading A100/H100 accelerators and software ecosystem,” Oppenheimer analyst Rick Schafer wrote in a research note.

Schafer noted that while AMD has said it has a multibillion-dollar opportunity in AI, it hasn’t given details of winning over major customers. His base case is for AMD’s GPU share to be relegated to the low end of the market.

Schafer kept a Perform rating on AMD stock, without a target price.

Write to Adam Clark at adam.clark@barrons.com