Is Advanced Micro Devices (NASDAQ:AMD) falling behind in the race for generative AI? Recent investor sentiment suggests so, with the stock taking a hit following the chip giant’s Q1 earnings release.
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While AMD surpassed expectations in both revenue and earnings in its Q1 report, the outlook didn’t match the sky-high investor optimism fueled by the ongoing AI boom, which has set lofty expectations for companies in this space.
In comparison to AI giant Nvidia, AMD’s revenue growth rates seem modest. While AMD raised its FY2024 data center GPU revenue guidance from $3.5B to over $4B, Nvidia reported a staggering $47.5B in data center revenues in FY2024 (217% year-over-year growth).
However, according to Morgan Stanley’s Joseph Moore, dismissing AMD would be a mistake. While acknowledging that expectations were indeed overly optimistic, the 5-star analyst expresses “significant enthusiasm for the core business,” foreseeing substantial advancements in client, server, and field programmable gate arrays (ICs that customers can reconfigure) in the coming year and a half.
Although AMD’s share in servers has remained stagnant for several quarters, Moore attributes this to hyperscalers pausing server upgrades. Assuming this trend reverses, AMD is poised to capture a significant portion of these mega projects.
More concerning to Moore is that Nvidia is beginning to flex its competitive muscles, as the market leader is taking a more aggressive stance on pricing. To effectively counter this, AMD will need to focus on innovation.
All in all, Moore believes that AMD’s lower stock price could present an opportunity for investors to buy shares at a bargain.
“Our enthusiasm is growing as the stock comes down. We like the fact that AMD will be relevant in the AI business, and at least for now they are the only solution that can compete with NVIDIA across multiple cloud customers, in our view. But we think those expectations got too high, and the Blackwell launch and marketing strategy shined a light on that, and those expectations are coming down,” Moore summed up.
To this end, Moore rates AMD shares as an Overweight (i.e. Buy), while his $176 price target implies ~17% upside from current levels. (To watch Moore’s track record, click here)
Most analysts agree that AMD is a worthwhile investment. With 27 Buy recommendations vs. 7 Holds, the message is clear: AMD is a Strong Buy. Given the $194.42 average price target, shares could soar 29% from current levels. (See AMD stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
