Advanced Micro Devices (NASDAQ:AMD) stock hasn’t exactly been a Wall Street darling this year, with its shares stuck in the red for 2024. This lackluster performance is all the more perplexing given AMD’s role as a key supplier of AI chips – a market that’s been riding an explosive wave of demand.
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But the surprises didn’t end there. Despite delivering a solid Q3 report in late October, AMD faced a lukewarm market reaction. The chipmaker posted record revenues of $6.8 billion, marking an 18% year-over-year surge and beating consensus estimates by $110 million. Moreover, non-GAAP gross margins climbed to 54%, showcasing solid operational strength. Yet, optimism quickly faded after AMD’s Q4 revenue guidance came in at $7.5 billion, just shy of Wall Street’s forecast of $7.55 billion.
However, one investor, using the pseudonym Oakoff Investments, argues that the market is getting it wrong.
“With a strong product roadmap and likely improving margins shortly, AMD seems to be well-poised to capitalize on the secular patterns of AI adoption, being the cheapest among major chipmakers,” Oakoff explains.
Oakoff cites a number of reasons for this optimism, particularly record growth in the data center and client businesses. Data center revenues increased by 122% year-over-year, driven by the “rapid emergence” of EPYC CPUs and Instinct GPUs.
Oakoff points out that these EPYC CPUS and Instinct MI300 GPUs are being utilized by hyperscalers such as Microsoft and Meta. This has led AMD to boost its full-year GPU revenues estimate north of $5 billion, which is a significant upgrade from the $2 billion number that was expected at the beginning of the year.
Of course, it’s not all smooth sailing. Oakoff acknowledges that the gaming and embedded segments are facing headwinds. However, the investor believes AMD’s strength in AI-driven products, combined with key partnerships, will more than offset these setbacks.
Moreover, Oakoff highlights that AMD has narrowed its valuation gap with Nvidia. Notably, AMD’s forward P/E ratio (41.23x) is now cheaper than Nvidia’s (46.80x). This, coupled with an expected EPS compound annual growth rate (CAGR) of 28.33% through FY 2028, gives Oakoff confidence that AMD has all the makings of a winner.
“AMD deserves to be bought on the dip today as the fundamentals and near prospects still look solid,” declares Oakoff, who rates AMD shares a Buy. (To watch Oakoff’s track record, click here)
This seems to mesh with the mood on Wall Street as well. With 23 Buy and 7 Hold recommendations, AMD boasts a Strong Buy consensus rating. Its 12-month average price target of $185.26 implies gains of ~34% in the year ahead. (See AMD stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
