Wells Fargo Sees a “Compelling Risk-Reward” in Advanced Micro Devices (AMD) Stock

Semiconductor giant Advanced Micro Devices (AMD) reported better-than-expected Q4 2024 earnings and revenue. However, the 69% growth in the company’s data center revenue lagged expectations, disappointing investors as they await AMD to reflect strong artificial intelligence (AI) tailwinds like rival Nvidia (NVDA). Nonetheless, Wells Fargo analyst Aaron Rakers remains bullish as he believes that AMD stock is currently trading near relative valuation lows and offers “an increasingly compelling risk-reward looking into mid-2025.”

Rakers reiterated a Buy rating on AMD stock with a price target of $140 following post-Q4 2024 results fireside discussion with CFO Jean Hu and two other executives. Let’s look at the key takeaways from this meeting.

Key Takeaways from Wells Fargo’s Meeting with AMD Management

• Patience Vital as Data Center Strategy Plays Out: Rakers highlighted that AMD’s management is confident about the data center product roadmap, but indicated that investors need to have patience as deployment “will exhibit lumpiness.” The 5-star analyst noted AMD’s focus on executing an expanding data center GPU strategy, with the expectations of a CDNA 4-based MI350X ramp (increased focus on AI training) in the mid/second half of 2025 and path to MI400X product cycle into 2026. While AMD didn’t provide any particular outlook for Instinct GPU (graphic processing unit) revenue, it is positive above winning a notable share over time. Meanwhile, Rakers continues to expect a high single-digit revenue share.

• Continued EPYC Server Momentum: Rakers pointed out AMD’s ability to continue to fuel further EPYC server CPU share gains this year. It is worth noting that AMD’s most incremental CPU share gains are expected to be driven by traction in the traditional Enterprise business and momentum in third-party cloud apps. Rakers estimates that AMD’s EPYC shipments have risen at a high-20% CAGR over the past four years compared to the high-teens CAGR decline in Intel’s (INTC) shipments.

• Strength in Client CPUs: Rakers stated that several investors have asked about AMD’s solid client CPU results in the second half of 2024 despite a subdued PC demand backdrop. Notably, AMD’s client CPU shipments increased by 34% in 2024 compared to a 7% estimated rise in Intel’s PC CPU shipments. In this regard, CFO Hu explained that the recent client CPU momentum came in due to share gains and customers gearing up for a Windows 10 refresh cycle. Rakers contends that AMD’s momentum in the commercial PC market is an underappreciated future growth driver, given the Windows 10 refresh cycle and the beginning of shipments of Dell’s (DELL) AMD-based Pro lineup in spring.

Overall, Rakers is optimistic about AMD’s ability to continue to win share in the server and PC CPU markets, increasing traction in data center GPUs, incremental operating leverage, and earnings power of more than $6 per share by 2025.

Rakers ranks No. 52 among more than 9,300 analysts tracked by TipRanks, with a success rate of 65% and an average return of 23.5%.

Is AMD Stock a Buy or Sell Now?

Overall, Wall Street has a Moderate Buy consensus rating on Advanced Micro Devices stock based on 24 Buys, 12 Holds, and one Sell rating. The average AMD stock price target of $147.14 implies 32.5% upside potential. AMD stock has declined about 36% over the past year.

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