Based on the huge success of its best-in-class chips, Nvidia is currently the undoubted AI champ. But that doesn’t mean it is set to have the playing field all for itself. And if there is one company seen as ready to give it a run for its money, then that is Advanced Micro Devices (NASDAQ:AMD).
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As AI moves from the training phase to the inference phase, AMD, with its MI300X accelerator, is ready to pounce on the opportunity available. That, at least, is the opinion of Melius Research analyst Ben Reitzes.
“The MI300X should benefit significantly from the ‘inferencing phase’ of AI, which is just beginning and requires a lot of high-bandwidth memory that is seeing increased supply each quarter this year,” Reitzes explained. “With Microsoft as an anchor – and other clouds now picking up – AMD can generate more upside in AI vs. prior estimates (we already raised 2x in 2024).”
As AI models move into production, with a chip “optimized for the inferencing explosion,” AMD is ready for lift off, and that requires some more readjusting of Reitzes’ AMD model. The analyst now sees AI sales (which are part of Data Center) reaching $5.2 billion in 2024, $9.5 billion in 2025 and $14 billion in 2026, up from the respective $4.5 billion, $8.5 billion and $12.5 billion beforehand. Based on total revenue growth of 19% to $26.9 billion (up from 16% & $26.3 billion) and accounting for improved Data Center revenue of $12.4 billion (compared to $11.8 billion previously), Reitzes now sees 2024 EPS reaching $4.13 vs. $3.98 previously.
Although Reitzes admits his continuous revisions might come across looking like misprints, these changes shouldn’t be much of a surprise. Continuing on the theme of Nvidia-like behavior, Reitzes also notes AMD’s chart “even feels like a mini-Nvidia on a delay.”
Even so, Nvidia being the industry’s driving force, Reitzes does not see AMD having an “adverse impact on Nvidia’s momentum” given the huge, anticipated TAM (total addressable market). Reitzes concedes he was rather skeptical when AMD raised its 2027 TAM for AI Accelerators to $400 billion but considering data firms’ latest predictions and Nvidia’s recent numbers, that figure now looks more credible.
“So, if AMD gets just 10% of its forecast for 2027 TAM of $400B for AI accelerators, total revenues approach $70B three years out with EPS power of $14/share. If they just get 2/3 of the way there, that should be good enough,” Reitzes noted.
Bottom-line, Reitzes rates AMD shares a Buy, while raising his price target to $265 (from $192), implying the stock will gain 31% over the coming months. (To watch Reitzes’ track record, click here)
27 analysts join Reitzes in the bull camp and with an additional 6 Holds, the stock claims a Strong Buy consensus rating. However, considering the huge share gains (150% over the past 12 months), the $201.26 average price target implies shares will remain rangebound for the time being. (See AMD stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
