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AMD’s Earnings Report Raises Concerns About Stock Valuation

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Bernstein analyst Stacy Rasgon expresses concerns over the impact of Advanced Micro Devices Inc.’s latest earnings report on the company’s stock valuation. Although the chip company increased its revenue expectations for its MI300X data-center graphics processing units, the optimistic estimates for this crucial business segment have set the bar so high that AMD’s projected revenue of over $3.5 billion seems disappointing.

According to Rasgon, the market’s overly optimistic expectations of generating more than $8 billion in revenue from data-center GPUs by 2024 may not be feasible. He believes that expectations for this year will need to be revised downwards, similar to Intel’s guidance. AMD’s stock is currently valued as the most expensive AI semi stock with a multiple of 44.6 times price to forward earnings per share, surpassing Marvell Technology Inc., Intel Corp., Nvidia Corp., and Broadcom Inc.

While acknowledging the strong potential of Nvidia’s MI300X business, Rasgon suggests that it may not be substantial enough at present. Therefore, he maintains his market-perform stance on AMD’s stock but raises his price target to $140 from $120.

However, Cantor Fitzgerald’s C.J. Muse takes a more positive view of the latest report and aims to provide context for the MI300 forecast.

AMD Faces Disappointing Outlook, But Analysts Remain Optimistic

Despite a “disappointing” outlook of $3.5 billion, AMD’s management team is still praised for their efforts. The expectations for AI GPU in the data center reaching $6.0 billion or more was seen as unrealistic. Analysts note that while the company did not meet this high bar, they still delivered where it mattered.

TD Cowen’s Matthew Ramsay commends AMD for their success with the MI300 and their ability to quickly develop software for large-language-model inference deployments. Despite challenges in the gaming business, Ramsay maintains an outperform rating and a target price of $185.

Baird’s Tristan Gerra believes it is too early to take profit. While 2024 may bring some challenges with a transition year and pressure on earnings per share due to increased AI ramping, Gerra remains optimistic for 2025 and beyond. He predicts AMD’s AI revenue to reach 35% of total revenue by 2025 and sees the company delivering over $7 in earnings per share by 2026. He rates the stock as outperform and raises his price target to $200 from $125.

Overall, while AMD’s outlook may have disappointed investors initially, analysts still see potential for significant upside in the company’s future.

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