AMD's AI Bet A 2024 Opportunity, But Near-Term Outlook Leaves Analysts Wary After Q2 Print

Advanced Micro Devices, Inc. AMD reported Tuesday after the close better-than-expected second-quarter results, but the guidance came in light.

The AMD Analysts:

• Bernstein analyst Stacy Rasgon maintained a Market Perform rating and $95 price target for AMD shares.
• Susquehanna Financial Group analyst Christopher Rolland reiterated a Positive rating and raised the price target from $135 to $145.
• Oppenheimer analyst Rick Schafer has a Sector Weight rating on the stock.
• Truist Securities analyst William Stein maintained a Hold rating and $84 price target.
• KeyBanc Capital Markets analyst John Vinh maintained an Overweight rating and a $160 price target.
• Morgan Stanley analyst Joseph Moore maintained an Overweight rating and a $138 price target.
• Wells Fargo Securities analyst Aaron Rakers reiterated an Overweight rating and $150 price target.
• Raymond James Srini Pajjuri maintained a Strong Buy rating and $145 price target.
• Rosenblatt Securities analyst Hans Mosesmann reiterated a Buy rating and $200 price target.
• Citigroup's Christopher Danely upgraded AMD from Neutral to Buy and upped the price target from $120 to $136.

The AMD Thesis

Stock Looks A Little Stretched, Says Bernstein: The entire stock call now seems to hinge on the uptake of AMD's AI chip MI300X, said Bernstein's Rasgon. "At this point while we are sure there is customer interest we have seen no specs or anything that might help to gauge uptake," he said.

Unless the numbers get “really material” soon, estimates appear to be too high, the analyst said, adding the “stock looks a little stretched to us.”

Susquehanna Bets On Expanding MI300 Opportunity: Data Center revenue is likely to accelerate in the third quarter and inflect higher in the fourth quarter, said Susquehanna analyst Rolland. The analyst expects fourth quarter Data Center revenue to grow more than $600 million sequentially, thanks to “several hundred million” of incremental MI300A revenue shipping into El Capitan and additional shipments into hyperscalers.

El Capitan is an upcoming exa-scale supercomputer from Hewlett-Packard Enterprises, Inc. HPE and AMD’s AI chips will likely power the machine.

Rolland’s positive opinion is premised primarily on the expanding opportunity for MI300.

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Oppenheimer Remains On Sidelines: Delving into the second-quarter results, Oppenheimer analyst Schafer said Client segment led, as PC market emerges from a yearlong cyclical correction. The company shoots for double-digit sequential growth for both Client and Data Center businesses in the third quarter and sequentially lower revenue for the Embedded and Gaming business, the analyst noted.

Enterprise remains weak and cloud service providers favor AI/accelerated compute versus legacy CPU-centric architectures, the analyst said. “We remain sidelined as AMD's AI strategy proves out,” he added.

KeyBanc Sees AI Chip Ramp-Up In 2024: AMD's second-quarter results and lower third-quarter guidance underlined the recovery in PCs that was offset by weaker server demand, said KeyBanc's Vinh. Server chip sales suffered from soft enterprise demand and cannibalization of traditional servers from increased AI spend, he added.

While the company lowered its 2023 Data Center outlook from double-digit growth to high-single-digit growth, it expects a meaningful fourth-quarter ramp, Vinh noted. The fourth-quarter ramp-up, the analyst said, is premised on the continued ramp-up of Genoa/Bergamo, server chip and CPU, respectively, and the ramp of MI300X at SC El Capitan.

KeyBanc slightly reduced its 2023 estimates for AMD but maintained its bullish recommendation on expectations of meaningful MI300X ramp-up in 2024.

AMD Uniquely Positioned: Morgan Stanley: Analyst Moore sees AMD as uniquely positioned with strong AI opportunity that begins in earnest only in 2024. The second quarter should be a significant relief for investors, who were bracing for margin impact from rival Intel Corp's INTC aggressive pricing and promotion, he said.

This sets up the stock nicely from here, he added.

Better-than-Feared, Says Wells Fargo: AMD's second-quarter results and forward guidance and the comments on AI engagement and Zen4 cloud expansion are incrementally positive, said analyst Rakers. This is especially so as investor sentiment has either waned or remained cautious, he added.

Citi Concedes It Was Wrong: Citi analyst Danely stated that he previously anticipated AMD’s MI300 would be margin dilutive and investors would be worried about the expensive valuation. "We were wrong on both counts," he said.

The firm raised its forward estimates for the company.

AMD Price Action: At last check on Wednesday, AMD shares were down 7.4% to $108.82, according to Benzinga Pro data.

Read Next: Trading Strategies For Advanced Micro Devices Before And After Q2 Earnings

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