Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.
Should You Buy AMD Stock on the Latest Dip?
The top headline in the semiconductor industry this week was the latest quarterly earnings report from artificial intelligence (AI) chip market leader Nvidia (NVDA), which traded mixed on Thursday after Q3 results that once again surpassed expectations. Analysts responded positively to Nvidia's results, with most on Wall Street reading the quarterly report as a resoundingly bullish signal for strong AI demand going forward.
NVDA stock set a new high above $152 after earnings before paring gains, and is up about 191% in 2024. Meanwhile, its top rival Advanced Micro Devices (AMD) remains on negative ground for the year as 2024 draws to a close, down 6% on a year-to-date basis.
Why is AMD Stock Underperforming?
While AMD is up more than 4,800% over the past decade, the shares have failed to impress investors this year. Declining revenues in its gaming and embedded segments have offset enthusiasm over strength in its data center segment, and the company has invested heavily in acquisitions as it attempts to compete with Nvidia in the AI chip market.
As a result, AMD is looking to cut costs, and the stock fell recently on news that the chip specialist plans to trim its workforce by 4%.
While equity benchmarks have rallied to new record highs this month amid broad-based post-election optimism, AMD is down 39% from its year-to-date highs, set in March. But after a “rebuilding” year of strategic investments in AI, should investors consider buying the dip in AMD stock?
AMD Delivers Stronger-than-Expected Q3 Results
On Oct. 29, AMD reported stellar third-quarter results, surpassing estimates across both revenue and earnings. Despite the strong performance, shares plummeted 7% following the earnings release, driven by weak forward guidance.
Net sales reached $6.82 billion, marking an impressive 17.5% year-over-year increase. The data center segment, in particular, posted $3.5 billion, a 122% jump compared to last year. AMD attributes its growth to the surging demand for its EPYC CPUs in the enterprise and cloud sectors. EPYC processors are becoming the industry standard for modern data centers, powering essential services such as Netflix (NFLX), Microsoft (MSFT) Office 365, and Meta's (META) Facebook.
The semiconductor leader reported a net profit of $771 million, or $0.47 per share, with adjusted EPS of $0.92 arriving roughly in line with estimates.
“Looking forward, we see significant growth opportunities across our data center, client and embedded businesses driven by the insatiable demand for more compute,” said AMD Chair and CEO Dr. Lisa Su.
However, management provided a conservative fourth-quarter outlook, which arrived below analysts' expectations. AMD is targeting revenue of $7.5 billion at the midpoint, which is $500 million shy of estimates - even as data center GPU revenue is now expected to exceed $5 billion, compared to management's previous forecast of $4.5 billion.
AMD Shares Pop on AI Pact with IBM
On Nov. 18, AMD announced a collaboration with IBM (IBM) to deploy the AMD Instinct MI300X accelerators on IBM Cloud. This partnership focuses on bolstering AI workloads and HPC applications. The MI300X, designed with advanced CDNA3 architecture and HBM3 memory, is optimized for AI training and inference. The announcement positively impacted AMD's stock, sending it 3% higher to snap a six-day losing streak.
Earlier this year, AMD also partnered with Microsoft to enhance AI capabilities on Windows PCs. The integration enables Copilot+, Microsoft's AI-powered assistant, on AMD CPU-based AI PCs through an upcoming free upgrade. This collaboration underscores AMD's push into AI-driven consumer and enterprise computing, leveraging its Ryzen AI processors.
Furthermore, AMD has partnered with OEMs like Acer, HP (HPQ), Lenovo, and Asus to roll out systems powered by the Ryzen AI 300 Series processors. These systems feature AMD’s latest Zen 5 architecture, which the chip giant says is designed to deliver top-tier performance across gaming, content creation, and everyday tasks. These partnerships align with AMD’s strategy to dominate the AI PC market while providing cutting-edge computing solutions for diverse uses.
What Do Analysts Say About AMD Stock?
While even AMD's biggest fans on Wall Street seem to agree that the company is still “chasing Nvidia” when it comes to AI chips, the stock is still a top pick. Overall, the 38 analysts in coverage have a consensus rating of “Strong Buy” for AMD, and the average price target of $190.81 implies expected upside of 37.6% from current levels.
Valued at 0.98 on a forward price/earnings-to-growth (PEG) basis, AMD looks like a reasonably priced AI growth stock to scoop up now.
On the date of publication, Nauman Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
