Advanced Micro Devices (NASDAQ:AMD) bears have been feasting over the past year with the stock shown to be a big laggard. In 2024, AMD declined by ~18%, sharply underperforming the Semiconductor Index (SOX), which posted a 19% gain.
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This underperformance might seem puzzling at first glance. As a key player in the AI arena, the Lisa Su-led company is widely regarded as the most viable challenger to Nvidia’s dominance in the AI chip market. However, the past year’s stock performance reflects lingering market skepticism about the company’s ability to truly capitalize on its AI potential.
Looking at the company’s situation, Loop Capital analyst Gary Mobley thinks that right now AMD is at the “cross-section between the changing system hardware architecture of general-purpose compute and accelerated compute.”
Mobley believes there are several key questions investors are mulling over right now: Can the progress being made in AMD’s GPU-based data center system architecture compensate for the slowdown in the general-purpose CPU server market? Will NPU-driven (neural processing unit) edge AI applications result in a PC replacement cycle? And how effectively can AMD capitalize on Intel’s struggles to accelerate market share growth in the PC and CPU-based general server sectors? Finally, how much of a challenge will Arm licensees pose to AMD in the traditional X86-based CPU market?
That’s quite a list but Mobley’s take is one the bulls will appreciate.
“Our view is that AMD will prove more triumphant in these market shifts versus what the equity markets seem to give the company credit for,” the analyst opined.
Still, as Mobley concedes, sentiment remains “quite low.” There are reasons for that, of course. PC sales saw out 2024 on a “sour note,” which could lead to subdued PC-related revenue for AMD in the first half of FY25. Additionally, investor expectations for its AI GPU sales in FY25 have declined, dropping from around $10 billion four months ago to roughly $8 billion at the moment.
Yet, as is often the case, the depressed view could prove fruitful for those willing to see beyond the near term. “Given this low investor sentiment, and given the relatively low valuation, we like the risk-reward for the shares,” Mobley remarked.
On that subject of valuation, currently, AMD shares are trading at 24.0x NTM non-GAAP EPS, which is below the SOX average of 29.0x. Meanwhile, the shares have been trading more like peers that have significant revenue exposure to mature markets like PCs, smartphones, and industrial sectors.
“In our view,” the analyst went on to say, “shares should more accurately reflect: 1) some degree of success in accelerated computing (e.g., GPU-based data center compute, XPUs, etc.) and 2) idiosyncratic market share expansion opportunities in general-purpose compute within PC and general server markets.”
So, down to business, what does this all mean for investors? Mobley rates AMD shares as a Buy, while his $175 price target suggest the shares will surge 47% over the coming months. (To watch Mobley’s track record, click here)
Most analysts are thinking along the same lines. Based on a mix of 21 Buys, 10 Holds and 1 Sell, AMD stock claims a Moderate Buy consensus rating. At $173.28, the average price target makes room for 12-month returns of 46%. (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.
