Advanced Micro Devices Inc.’s earnings could make “an expensive stock even more so,” in the view of Bernstein analyst Stacy Rasgon.
While the chip company boosted its annual revenue expectation for its MI300X data-center graphics processing units that enable artificial intelligence, bullish estimates for the crucial business had come up so much that AMD’s
AMD,
forecast for more than $3.5 billion in such revenue seemed like a letdown.
See more: AMD’s AI revenue forecast gets a massive boost — but apparently not enough, as stock falls
But at the same time, he noted that “uber-bullish expectations” for perhaps upward of $8 billion in revenue from data-center GPUs “are
probably out of reach at least in 2024, and while the guide overall is not out of line with what we saw from Intel, it does suggest numbers this year are going to need to come down once again.”
The crucial question for investors concerns the size of Nvidia’s MI300X business, “and for now at least, perhaps the answer is ‘not quite big enough,’” Rasgon wrote, as he maintained his market-perform stance on AMD’s stock but upped his price target to $140 from $120.
He called the stock “the most expensive of the AI semi stocks by a wide margin,” pointing to its multiple of 44.6 times price to forward earnings per share. That compares with 36.7x for shares of Marvell Technology Inc.
MRVL,
31.9x for shares of Intel Corp.
INTC,
31.7x for shares of Nvidia Corp.
NVDA,
and 25.8x for shares of Broadcom Inc.
AVGO,
Read: Why Marvell just dethroned Nvidia as Citi’s top chip-stock pick
AMD’s stock was falling 6% in Wednesday’s premarket action.
Others viewed the latest report more positively. Cantor Fitzgerald’s C.J. Muse sought to put the MI300 forecast in context.
While the $3.5 billion outlook “will likely be viewed as disappointing by the Street,” he argued AMD’s management team ” But if you take a step back, it’s fairly clear that mgmt “faced an impossible task with buy-side [data-center] AI GPU expectations recently increasing to as high as $6.0B or more.”
“Any rational investor knows the company was not going there today,” he added, but he saw “no change to [his] thesis other than perhaps incremental weakness in the non-AI businesses.”
Muse rates the stock at overweight with a $190 target price.
AMD faced “a high bar, no doubt” but “delivered where it mattered” in terms of bringing “material upside and sustained MI300 momentum,” added TD Cowen’s Matthew Ramsay.
“We’ve been particularly impressed with how quickly AMD and their customers have developed/tuned software for [large-language-model] inference deployments for this burgeoning franchise that will likely be AMD’s fastest-ever ramp,” he continued.
While he acknowledged that challenges in the company’s gaming business have been worse than feared, he kept his outperform rating and $185 target price on the stock.
Baird’s Tristan Gerra, meanwhile, said it was “too early to take profit.”
“While 2024 is somewhat of a transition year with a steep but early AI ramp partially offset by gaming and embedded, pressuring our [earnings per share] estimate for 2024, our 2025 EPS outlook goes up driven by a low-teen AI market share assumption,” he wrote. “AMD raised its AI revenue guidance for 2024 and we model AI exiting 2025 at 35% of total revenue.”
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The company can deliver more than $7 in earnings per share come 2026, he said, adding that “significant upside potential exists for the stock,” which he rates at outperform. Gerra boosted his price target on AMD shares to $200 from $125 after Tuesday’s report.
