Despite Advanced Micro Devices’ (AMD) positive sales guidance for its datacenter artificial-intelligence (AI) chips, the company’s stock took a hit on Wednesday. This dip may indicate that the market has already priced in the boom in AI spending, at least in the short term.
Early trading on Wednesday saw AMD’s stock down 3.7% at $165.65. Although this decline is relatively small compared to the stock’s impressive 96% rise over the past year, it suggests a potentially more challenging path for further gains.
Before AMD’s earnings release, the focus was on the company’s flagship MI300 chip and its potential to capture market share as the second choice after Nvidia for AI technology power. In a positive move, AMD raised its 2024 forecast for MI300 chip revenue to $3.5 billion, marking a 75% increase from its previous guidance of $2 billion. However, some analysts had speculated that AMD could forecast even higher figures, reaching $6 billion or beyond.
According to Melius Research analyst Ben Reitzes, despite falling short of the more optimistic projections, AMD’s confidence in the huge AI accelerator total addressable market of over $400 billion by 2027 (up from $45 billion in 2023) and its ability to secure additional supply reflect the company’s true trajectory.
While there may be some short-term volatility, AMD’s strong sales guidance and its position in the growing AI industry suggest that the company is on a promising path for future success.
Analysts Remain Bullish on AMD Stock
By Adam Clark
AMD stock faced a drop after the company’s latest earnings report, but analysts are still optimistic about its future. Many believe that the company is being too conservative with its forecasts for AI chip sales.
CFRA Research’s Angelo Zino raised his target price for AMD stock to $200, up from $150, and maintained a Buy rating. He argued that the company’s AI chip forecasts are likely to be surpassed. Benchmark Research’s Cody Acree also increased his target price to $187, from $145, and advised investors to take advantage of any pullbacks in the stock price.
However, the drop in AMD stock highlights the high expectations placed on AI stocks this earnings season. Companies like AMD, with their high valuations and forward price-to-earnings multiples, are under particular scrutiny. In fact, AMD trades at a multiple of approximately 44 times, according to FactSet.
Investors will now shift their attention to Nvidia, which is set to report its fourth-quarter earnings on Feb. 21. The reaction to Nvidia’s results will provide further insight into the direction of the AI chip sector.
As of early trading on Wednesday, Nvidia shares were down 2% while Intel was down 0.9%.
