AMD (AMD) Sees a Clear Path in Scaling its AI Business to Tens of Billions of Dollars

Stock (Symbol)

Advanced Micro Devices (AMD)

Stock Price

$167

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:

• Datacenter: EPYC CPUs and Instinct GPUs for servers in data centers.
  • 42% of company revenue last qtr with 14% revenue growth year-over-year (yoy).
  • Growth in revenue was primarily driven by strong demand for AMD EPYC processors more than offsetting headwinds impacting AMD Instinct MI308 shipments to China.
• Client: Ryzen processors for notebooks, desktop PCs, and commercial workstations.
  • 33% of total company revenue, 67% revenue growth year-over-year.
  • Growth is primarily driven by strong demand for the latest “Zen 5” AMD Ryzen™ desktop processors and a richer product mix.
• Embedded: products for embedded platforms to support high-performance network connectivity.
  • 11% of AMD revenue last qtr, -4% revenue growth.
  • The decline was due to demand in end markets remained mixed.
• Gaming: Radeon processors for desktops, notebooks, and game consoles.
  • 15% of revenue, 73% revenue growth.
  • Revenue was primarily due to strong demand for AMD’s newlt launched gaming GPUs and higher semi-custom revenue.

AMD has been a wild stock the past year. I actually sold the stock in February around $113 due to it being so weak. This quarter, AMD has an Estimated Long Term Growth Rate of 29% per year, and a bit overvalued at P/E of 43. Although AMD doesn’t pays a dividend, management buys back stock. In 2024 management bought back 6 million shares for $862 million. AMD will be purchased for the Growth Portfolio. The stock could a huge winner from AI spending in the coming years.

One Year Chart

AMD stock has had a crazy year. And this dip you see here caused me to sell the stock back in February. Now I buy it back at a higher price than when I sold it.

AMD has a P/E of 43 this qtr. I think the stock is fairly valued at a P/E of 35. But this new AI chip could lead to big profits in the future.

The Est. LTG is 29%, slightly above than the 27% last qtr.

Qtrly profit growth hasn’t really been a good predictor fo the stock this year.

Earnings Table

Last qtr, AMD produced -30% profit growth and missed expectations of -28%. Revenue increased 32%, year-over-year versus estimates of 27%. Gross margin was 43% compared to 53% a year ago. Operating margin was 12% compared to 22% a year ago.

• AI revenue declined as US export restrictions eleminated MI308 sales to China.
• In cloud, there are now nearly 1,200 EPYC cloud instances available globally as providers continue expanding coth the breadth and regional availability of their AMD offerings.
• In cloud, adoption expanded with the largest hyperscalers as they deployed EPYC to power more mission-critical infrastructure. EPYC adoption also grew in telecom, specifically Nokia and KDDI. EPYC enterprise deployments grew significantly.

Annual Profit Estimates increased this qtr. 

Qtrly profit Estimates are for 26%, 18%, 24%, and 183% growth in the next four qtrs. Analysts estimate 28% revenue growth next quarter.

Fair Value

My Fair Value is a P/E of 35, which equates to $137 in 2025.

When we look to 2026 my Fair Value is $208, giving the stock upside of 24%.

But these profit estimates seem like guesses to me.

Bottom Line

Advanced Micro Devices (AMD) grew profits nicely during 2017 – 2022. Profits failed to hit new highs in 2023 and 2024. The stock has been crazy the past ten years.

AMD was extremely bullish on demand for its datacenter chips. Oracle is set to have busines balloon in the coming years, and that means more computing power will be needed. The company also sees significant opporunities powering national computing centers and sovereign AI initiatives.

AMD will be purchased for the Growth Portfolio today. The stock will rank 15th in the Power Rankings.  

Power Rankings

15 of 34

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

N/A