Northland Capital Markets maintained a positive outlook on Advanced Micro Devices, Inc. (NASDAQ:AMD) stock, reiterating an Outperform rating with a steady price target of $195.00.
The firm's stance comes after AMD's recent update on its AI revenue forecasts and market share dynamics in the GPU industry.
"AMD reset expectations for AI revenue, and 1H non-AI weakness is now in estimates. AMD/ATI and NVIDIA (NASDAQ:NVDA) have dominated the GPU market for over 20 years, and as AMD has turned its attention to the AI GPU market, we expect share gains to accelerate," the analysts said.
The firm suggests that AMD's current AI revenue may be limited by production capabilities but expects AMD to secure over 20% of the AI GPU market in the future. This projection is supported by the recent increase in AMD's AI revenue forecast from $2 billion to $3.5 billion, as announced on last week's earnings call.
The competitive landscape in the GPU market is shifting, with NVIDIA currently holding a 70% share of the AI accelerator market. However, NVIDIA's decision to offer GPU as a Service could disrupt its customer relationships. AMD's introduction of the MI300 GPU presents a new challenge to NVIDIA, leveraging an open-source strategy to compete on software. Additionally, industry dynamics may favor AMD as it is a larger consumer of wafers from TSMC compared to NVIDIA, which is expected to start utilizing Intel (NASDAQ:INTC)'s 18A process by CY26.
The report also highlights the substantial gross margins NVIDIA enjoys on its H100 product, which range between 80% and 90% due to a markup of 5X to 10X. Despite this, the emergence of AMD's products in the AI space is causing a shift, with AMD's AI revenue increasing faster than anticipated. The firm has adjusted its expectations, pulling forward the forecast for AMD's AI revenue, now estimating it to account for 14% of this year's revenue and 22% for the next year.
Northland Capital Markets' outlook for AMD is bolstered by the company's aggressive efforts to ramp up its supply chain to meet the growing demand for its AI products. With these developments, Northland sees potential upside to both revenue and gross margin estimates for AMD in the coming years.
InvestingPro Insights
As Advanced Micro Devices, Inc. (AMD) continues to make waves in the AI and GPU markets, Northland Capital Markets remains steadfast in their optimistic valuation of the company. InvestingPro data provides additional context to this bullish stance with a Market Cap of $287.06B and a Revenue Growth (Quarterly) for Q1 2023 at 10.16%, highlighting AMD's financial robustness and its ability to increase sales amidst competitive pressures.
InvestingPro Tips suggest that AMD's net income is expected to grow this year, which aligns with Northland's positive revenue and gross margin forecasts. The company's strategic moves in the AI GPU market, including the introduction of the MI300 GPU, could be a driving force behind this anticipated growth. On the flip side, 30 analysts have revised their earnings downwards for the upcoming period, which may suggest a more cautious outlook amidst AMD's aggressive expansion.
With a P/E Ratio (Adjusted) for the last twelve months as of Q4 2023 standing at 335.79, AMD is trading at a high earnings multiple, indicating that investors may expect significant future growth from the company. This is further supported by a 1 Year Price Total Return as of Y2024.D36 of 106.37%, showcasing a strong performance over the past year that has likely contributed to investor confidence.
For those looking to delve deeper into AMD's financials and future prospects, InvestingPro offers a comprehensive set of additional tips—19 in total—that can provide further insights. Subscribers can now benefit from a special New Year sale, with discounts of up to 50%. Use coupon code SFY24 to get an additional 10% off a 2-year InvestingPro+ subscription, or SFY241 to get an additional 10% off a 1-year InvestingPro+ subscription. Explore these insights at https://www.investing.com/pro/AMD to make informed investment decisions.
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