Advanced Micro Devices (AMD) is in a Steep Ramp Up of Datacenter AI GPUs

Stock (Symbol)

Advanced Micro Devices (AMD)

Stock Price

$141

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 CPUs and Instinct GPUs for servers in data centers.
  • 49% of company revenue last qtr with 115% growth year-over-year (yoy).
  • AMD launched the Instinct MI300 last December. 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.
  • Growth was primarily driven by the steep ramp of AMD Instinct™ GPU shipments, and strong growth in 4th Gen AMD EPYC™ CPU sales.
• Gaming: Radeon processors for desktops, notebooks, and game consoles.
  • 11% of revenue, -59% growth.
  • Revenue decline is due to a decrease in semi-custom revenue.
• Client: Ryzen processors for notebooks, desktop PCs, and commercial workstations.
  • 26% of total company revenue, 49% growth year-over-year.
  • Growth is primarily driven by sales of AMD Ryzen™ processors and initial shipments of Zen 5 processors.
• Embedded: products for embedded platforms to support high-performance network connectivity.
  • 15% of AMD revenue last qtr, -41% growth.
  • The decrease was driven by the customers who remained focused on normalizing their inventory levels.

AMD like the mini-me to NVIDIA in terms of revenue. AMD is expected to do around $25 billion in revenue this year compared to NVIDIA’s $125 billion. But AI is such a large catalyst that I think both can share in this enourmous opporunity. This quarter, AMD has an Estimated Long Term Growth Rate of 33% per year, and a P/E of 41. The P/E is high, but we have to look ahead to what profits and the stock might be next year. Although AMD doesn’t pays 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, and I feel now is the time to buy the stock. AMD will be purchased for the Growth Portfolio.

One Year Chart

This is an odd looking chart pattern. The stock has little momentum right now. But notice profit growth is expected to accelerate from 19% last quarter to 30% next quarter then 49% the quarter after. These big numbers could draw headlines.

AMD has a P/E of 41 this qtr. That’s a little too high. More on the valuation later.

The Est. LTG is a plump 33%, same as last qtr.

Earnings Table

Last qtr, AMD produced 19% profit growth and beat the expectations of 16%. Revenue increased 9%, year-over-year versus estimates of 7%. Gross profit margin was 53% compared to 50% a year ago. Operating margin was 22% compared to 21% a year ago.

Data Center segment saw impressive growth, with revenue up 115% year-over-year. AMD’s key GPU, MI300, brought in over $1 billion in revenue for the first time, thanks to increased use by Microsoft. AMD also raised its forecast for Data Center GPU revenue for the year. On the other hand, the Gaming and Embedded segments struggled, with declines of 59% and 41% year-over-year, respectively. AMD expects gaming sales to be lower in the second half of the year and sees a gradual recovery for its Embedded segment.

Annual Profit Estimates declined for 2024 and 2025, but improved in 2026. 

Qtrly profit Estimates are for 30%, 49%, 76%, and 78% growth in the next four qtrs. But these numbers fell a bit. Analytst estimate 16% revenue growth for the next quarter. That would be acceleration from last qtr’s 9%.

Fair Value

My Fair Value remains at P/E of 35, which makes tge stock overvalued in my opinion.

But when we look to 2025 the stock has nice upside. I imagine the stock could go to $190 in a year or so.

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 ramping up its AI GPU deliveries. And that’s expected to lead to accelerating profit growth the next four quarters — with 70%-plus growth expected three and four quarters from now. That could be a catalyst to send the shares higher.

AMD will be purchased for the Growth Portfolio. The stock will rank 15th in the Power Rankings, ahead of ServiceNow but behind Visa, the latter of which is breaking out today.

Power Rankings

15 of 21

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

N/A