Advance Micro Devices (AMD) is Seeing Strong Demand for its AI Processors

Stock (Symbol)

Advanced Micro Devices (AMD)

Stock Price

$172

Sector

Data is as of

Expected to Report

Company Description

Advanced Micro Devices, Inc. is a global semiconductor company. Its segments include Computing and Graphics, and Enterprise, Embedded and Semi-Custom.

The Computing and Graphics segment primarily includes desktop and notebook microprocessors, accelerated processing units that integrate microprocessors and graphics, chipsets, discrete graphics processing units (GPUs), data center and professional GPUs, and development services.

It may also sell or license portions of its intellectual property (IP) portfolio.

The Enterprise, Embedded and Semi-Custom segment primarily includes server and embedded processors, semi-custom system-on-chip (SoC) products, development services, and technology for game consoles, and it may also sell or license portions of its IP portfolio.

Its microprocessor customers consist primarily of original equipment manufacturers (OEMs), large public cloud service providers, original design manufacturers (ODMs), system integrators, and independent distributors. Source: Refinitiv

Sharek’s Take

Advanced Micro Devices is a semiconductor company focused on high-performance computing technology, software, and products. It develops high-performance CPUs and GPUs and integrates these with hardware and software. CPUs are used for client systems, high-performance computing, and cloud computing. GPUs are used for gaming, artificial intelligence, and virtual reality. The company has four business segments, here’s some info from last qtr:

• Data Center: EPYC processors for servers in data centers.
  • 37% of company revenue last qtr with 38% growth year-over-year (yoy).
  • AMD launched the MI300 last cember. The company claims the MI300x is the worlds most advanced accelerator for generative AI. The Instinct MI300 platform is made up of 8 MI300x’s in one unit, similar to NVIDIA’s 8 H100’s.
  • Data Center GPU business accelerated in the quarter, driven by a faster ramp for MI300x with AI customers.
• Gaming: Radeon processors for desktops, notebooks, and game consoles.
  • 22% of revenue, -17% growth.
  • The decline is due to a very strong 5 year console cycle slowing down as supply caught up with demand.
  • Gaming graphics revenue grew driven by strong demand in the channel for both Radeon 6000 and Radeon 7000 series GPUs.
• Client: Ryzen processors for notebooks, desktop PCs, and commercial workstations.
  • 24% of total company revenue, 62% growth year-over-year.
  • Increase was driven primarily by an increase in AMD Ryzen 7000 sales.
  • AMD launched their lates generation Ryzen 8000 series notebooks and desktop processors in January.
  • The Ryzen 8040 Mobile delivers 60% more AI performance compared to the previous generation, while also being more energy efficient.
• Embedded: products for embedded platforms to support high-performance network connectivity.
  • 17% of AMD revenue last qtr, -24% growth.
  • The decline was due to customers reducing their inventory levels.

AMD is on the radar for the Growth Portfolio. I’d like to but the stock but we already own NVIDIA in that portfolio, so I don’t really need to have AMD as well. AMD currently has an Estimated Long Term Growth Rate of 25% per year, and a lofty P/E of 48. Although AMD doesn’t pay a dividend, management buys back stock. In 2023 management bought back 10 million shares for $985 million. AMD’s AI GPU seems to be working great. I want to buy the stock, but it just ran from $100 to $175 in just a few months. AMD is on the radar for the Growth Portfolio.

One Year Chart

This stock recently broke out at $125 then again at $150. Now AMD is in another shallow base. It could break out again ad go higher. 

One thing that might hold the stock back is this P/E of 48. NVDA currently has a P/E of 34. So AMD is more expensive. Maybe analysts envision big profits for AMD in future years?

The Est. LTG is 25%, up from 10% 2QtrsAgo. 25% is more appropriate.

Qtrly profit growth is meh and that might continue into next qtr. Then profits are expected to accelerate.

Earnings Table

Last qtr, AMD produced 12% profit growth and met analyst estimates. Revenue growth was 10%, year-over-year versus estimates of 9%. Gross profit margin was flat at 51% yoy. Operating margin was 23%.

Client segment took the largest growth last quarter at 62%. Driven by an increase in AMD Ryzen™ 7000 Series CPU sales. AMD launched their latest generation of Ryzen 8000 Series notebooks and processors. It is the industry’s first desktop CPUs with an integrated AI engine. Data Center and Client segments are growing sequentially driven by sales of EPYC Processor and Ryzen 7000 Series. AMD launched the MI300x accelerator family.

Annual Profit Estimates declined for 2023 but improved for 2024. Perhaps this a positive sign for the new processors.

Qtrly profit Estimates are for 0%, 19%, 43%, and 68% growth in the next four qtrs. For next qtr, management expects revenue from Data Center to be flat, Embedded to decline, Gaming Segment to decline, and Client Segment to decline. Analytst estimates a 1% revenue growth for the next quarter.

Fair Value

My Fair Value remains at P/E of 35, As I believe AMD is currently overvalued as its P/E is 48.

My 2024 Fair Value is $126. The stock is $172 ths quarter.

Note there is upside to 2025’s Fair Value of $191. But I expect 2025 profit estimates to rise as AI chip demand is strong.

Bottom Line

Advanced Micro Devices (AMD) grew profits nicely the past 5 years. But before to that, the company had troubles growing consistently.

AMD is trying to be a NVIDIA’s mini-me. But right now AMD is more expensive than NVIDIA. I feel NVIDIA is charging too much for its H100s, but demand is so strong it can do so. Big companies want AMD to succeed so there’s competition in the market place.

AMD is on the radar the Growth Portfolio. I should have bought it earlier and will try to wait for a correction to get in.

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