Shares of Advanced Micro Devices plunged in early trading Wednesday, dragging its six-month performance into negative territory, after a string of third-quarter earnings for the artificial intelligence chip maker failed to impress Wall Street.
amd (amd) which bills itself as the most comprehensive player in the ai investment space, with divisions covering data centers, servers and personal computers, is trying to chase Nvidia's market share lead. (NVDA) with a new line of high-performance processors.
The group's flagship ai-powered graphics processing unit, called MI300, is also seeing a surge in demand from hyperscaler customers such as Meta Platforms. (GOAL) as they increase spending to train their massive data sets of large language models.
However, supply remains tight, given capacity constraints at key assembly facilities and rising overall demand, leaving AMD and other managers wary of investor expectations even as the long story term remains compelling from a generational point of view.
“Our opportunities are amplified exponentially by the rapid adoption of ai, which is enabling new experiences that will make high-performance computing an even more essential part of our daily lives,” CEO Lisa Su told investors at a conference. phone call on Tuesday night.
“In the data center alone, we expect the ai accelerator (total addressable market) to grow more than 60% annually to reach $500 billion in 2028,” he added. “To put this in context, this is roughly equivalent to the annual sales of the entire semiconductor industry in 2023.”
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However, the group's near-term outlook appeared to disappoint investors, as Su presented a sales forecast of more than $5 billion for the MI300 in 2024, as well as around $7.5 billion in fourth-quarter revenue. with a gross margin of around 54%.
“Our experts believe that AMD is still clearly the second player in the ai accelerator market,” said Lucas Keh, an analyst at Third Bridge.
“They have a good chance to gain incremental share from Nvidia (NVDA) with its 325x and 350 Instinct products amid ongoing concerns about Blackwell delays from major customers as well as the growing need for computing resources.”
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Cantor Fitzgerald analyst CJ Muse, who has a $180 price target on the stock, forecasts the MI300 line will generate $12 billion in revenue over the medium term.
“We have no doubt that they will get there, whether in 2025 or 2026,” he said. “In the meantime, we view shares largely within the $150 to $170 range until we have a clear view of this earnings power, which supports increasing our price target.”
KeyBanc Capital Markets analyst John Vinh was also encouraged by the MI300's prospects, as well as AMD's broader data center gains. But it noted that it was largely offset by slower growth in the group's embedded and gaming segments, the latter of which includes chips used in automotive and industrial applications.
“In (the fourth quarter), AMD sees data center once again leading quarter-over-quarter growth and customers showing incremental growth, while gaming and embedded services would be more modest,” Vinh said.
“Year-over-year, the data center is expected to double and customer numbers are expected to increase 29%, which is expected to offset year-over-year declines in integrated services and gaming.”
AMD's MI300 to lead server sales
Evercore ISI analyst Mark Lipacis, who raised his price target by $5 to $198 per share following last night's earnings report, sees growth in AMD's personal computing business providing additional support to expected earnings. in the data center division.
Stifel's Ruben Roy, meanwhile, reiterated his buy rating and $200 price target, estimating that MI300 sales would likely outpace overall server CPU revenue in the near term.
“We continue to expect strong follow-up to ai computing sales in 2025 as the MI325 processor series ramps up,” Roy said.
“While management noted that data center infrastructure built for a handful of large customers can, at times, be uneven, we continue to expect significant growth, particularly in the second half of the calendar year.”
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“Management's comments were largely in line with our expectations, and we continue to expect AMD to benefit from a multi-year ai infrastructure investment cycle,” he added.
Goldman Sachs analyst Toshiya Hari also reiterated his “buy” rating and $175 price target on AMD, citing growing adoption of the MI300 among hyperscalers like Microsoft. (MSFT) oracle (ORCL) and Goal.
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Hari, who cut his near-term earnings estimates following last night's updates, nonetheless sees “gains in traditional computing and the company's share of ai computing driving revenue growth, margin expansion and increasing profits in the medium and long term above the industry average.”
AMD shares fell 9.1% in early trading Wednesday to change hands at $151.07 each, a move that takes the stock into negative territory for the past six months.
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