AMD's Rising Star - What's Behind Goldman Sachs' Surprising Price Target Increase?

Goldman Sachs analyst Toshiya Hari maintained Advanced Micro Devices Inc AMD with a Buy and raised the price target from $137 to $157.

Hari increased his 2024 and 2025 revenue estimates for AMD by 7% and 10%, respectively, as he reflected on last week's supply chain checks that indicated broad-based adoption of the company's MI300 Data Center GPU offering across the cloud and enterprise markets. 

Precisely, for Data Center GPUs, the analyst now models 2023, 2024, and 2025 revenue of $595 million, $4.0 billion, and $7.9 billion, respectively. 

Hari's 2024 and 2025 adjusted EPS (excluding SBC) estimates increase 11% and 12% from $3.88 and $6.40 to $4.30 and $7.18, respectively, on higher revenue and higher gross margin (Data Center GPUs being accretive to corporate gross margins) only partially offset by higher operating expenditure. 

From a stock perspective, the analyst envisions AMD's early success in Data Center GPUs augmenting what he expects to be a constructive year for its server CPU franchise (i.e., market recovery + sustained market share gains) and ultimately driving outperformance in 2024. 

Within the context of the U.S. Semiconductor space, Hari believes Nvidia Corp NVDA, AMD, Arm Holdings Plc ARM, Broadcom Inc AVGO, Marvell Technology, Inc MRVL, Credo Technology Group Holding Ltd  CRDO, and Micron Technology, Inc MU are well-positioned to benefit from the ongoing build-out of data center AI infrastructure. 

Within Hari's coverage universe, he views Intel Corp INTC, Western Digital Corp WDC, and AMD as the key beneficiaries of a resumption of PC volume growth.

The analyst continues to be bullish on Micron and expects improving industry supply/demand dynamics to drive a multi-quarter positive EPS revision cycle.

For AMD, Hari projects CY23 revenue and EPS of $22.63 billion and $2.70, CY24 revenue and EPS of $27.82 billion (prior $26.07 billion) and $4.30 (prior $3.88), and CY25 revenue and EPS of $36.23 billion (prior $32.83 billion) and $7.18 (prior $6.40).

Price Action: AMD shares traded lower by 0.42% at $138.56 on the last check Monday.

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