Published: Jan. 30, 2024 at 7:58 a.m. ET
Advanced Micro Devices Inc. reports earnings after the closing bell Tuesday, and one analyst has ratcheted down his enthusiasm for the stock ahead of the big event.
Admittedly, Raymond James’ Srini Pajjuri is still bullish on the stock, but he bumped his rating on it down to outperform from strong buy. While Pajjuri didn’t focus on the upcoming report, he called out “elevated AI revenue expectations” in general.
He…
Advanced Micro Devices Inc. reports earnings after the closing bell Tuesday, and one analyst has ratcheted down his enthusiasm for the stock ahead of the big event.
Admittedly, Raymond James’ Srini Pajjuri is still bullish on the stock, but he bumped his rating on it down to outperform from strong buy. While Pajjuri didn’t focus on the upcoming report, he called out “elevated AI revenue expectations” in general.
He upped his price target to $195 from $190 in his latest note, with the new target implying less than 10% upside from current levels. By definition, “strong buy” recommendations at Raymond James require an analyst to see the potential for a return of at least 15% over six to 12 months. Outperform-rated stocks, meanwhile, are expected to beat the S&P 500 over a 12- to 18-month span.
Pajjuri highlighted that AMD
AMD
has announced three big cloud or hyperscale customers for its artificial-intelligence graphics processing units so far in Microsoft Corp.
MSFT
,
Meta Platforms Inc.
META
and Oracle Corp.
ORCL
,
and he calculates that rival Nvidia Corp.
NVDA
,
the overwhelming market leader, shipped about 900,000 to that grouping over the course of 2023. Meanwhile, Wall Street expectations seem to imply projections for AMD to ship 250,000 to 500,000 units this year, which would translate to a 15% to 25% unit share of the market.
Read: AMD earnings are around the corner, and this number could be the ‘swing factor’
“We are in no way suggesting that AMD has only 3 cloud/hyperscale customers but believe that a vast majority of AMD’s 2024 shipments are likely going to MSFT and META,” he wrote. “Such a rapid share gain is less common in data center and could also attract more aggressive competitive reaction from NVDA.”
Additionally, Pajjuri wrote that AMD’s stock multiple could compress as AMD’s revenue growth accelerates on the heels of traction for its MI300 AI accelerator. If one assumes AMD shares will trade at a similar multiple to Nvidia shares at about 26 times projected earnings per share for calendar 2025, that would imply AMD shares are discounting about $7 in earnings per share for 2025. That compares with the $5.33 consensus view.
“We project AMD’s base business to earn [$3.50 to $4 a share] in 2025, which means AI GPUs will need to contribute >$3 EPS,” he wrote, which equates to approximately $12 billion in revenue or 800,000 units. By contrast, Nvidia shipped perhaps 2 million units in 2023 and could ship 3.2 million in calendar 2025.
See also: Super Micro’s monster earnings forecast sends stock soaring yet again
“While ~20% unit share is not impossible, we think it’s a little premature to give the benefit of the doubt,” Pajjuri continued, noting for context that AMD has 15% unit share in gaming GPUs and about 25% share of the market for server CPUs.
Eugen Boglaru is an AI aficionado covering the fascinating and rapidly advancing field of Artificial Intelligence. From machine learning breakthroughs to ethical considerations, Eugen provides readers with a deep dive into the world of AI, demystifying complex concepts and exploring the transformative impact of intelligent technologies.
