Market Commentary: $1 Billion in Sales Is Just The Beginning
AMD’s MI300 chip has the potential to become the fastest product in the company’s history to reach $1 billion in sales. That single product is contributing to an overall great quarter.
In Q3, AMD reported revenues of $5.8 billion, beating analysts’ expectations of $5.7 billion. Adjusted EPS came in at $0.70, also exceeding the forecasted $0.68. However, the company guided for $6.1 billion in revenue for Q4, falling short of the expected $6.4 billion.
Is the mix of good and bad an opportunity to buy or sell?
AMD On The AI Frontier
AMD appears determined not to let Nvidia take all the glory when it comes to AI chip manufacturing. While Nvidia currently leads in AI chips, CEO Lisa Su has said, “I’m not a believer in moats when the market is moving as fast as this.”
The acquisition of an AI startup, Nod.ai, underlines AMD’s strategic efforts to upend Nvidia’s dominance in the AI sector and boost its technology stack, making it easier to deploy AI models specifically tailored for AMD’s chips.
As its stack is enhanced, AMD is increasingly morphing into a high-margin, high-quality business with a widening moat. Analysts have emphasized the positive long-term secular trends for hardware manufacturing firms, like AMD, particularly over the next couple of years.
The facts already support the optimism with AMD’s adjusted operating margin standing at a healthy 22%—above the expected 21.6%, showcasing the company’s operational efficiency.
Big Funds Buying AMD
Just last week, Cathie Wood’s ARK Invest purchased more than 50,000 shares of AMD, an investment valued at over $5 million. Wall Street is fairly bullish too, with 39 analysts covering the stock and pegging fair value at $130.11 per share, well above present share price levels.
It’s not entirely a surprise given net income levels are forecast to grow starkly this year, not least because of its exposure to gaming and data centers.
Gaming revenue for Q3 stood at $1.5 billion, albeit missing analysts’ expectations of $1.53 billion. Similarly, the embedded segment revenue was at $1.2 billion, a 5% year-over-year decline, falling short of estimates of $1.31 billion.
AMD’s focus on data centers is perfectly timed. CEO Lisa Su announced that it expects to exceed $2 billion in sales of the new MI300 AI accelerators by 2024, a reasonable assumption given the $400 million sales forecast for the fourth quarter of this year alone.
Is AMD a Buy?
AMD is certainly taking risks but they are calculated moves backed by sound strategy and a finger on the market pulse. The company is forecast to grow earnings this year and is innovating sufficiently well to become a serious alternative to Nvidia.
With all that said a discounted cash flow forecast suggests the company is quite fairly priced at this time with fair value at $103 per share. Analysts, though, are more buoyant with a price target of $130.11 per share, inferring considerable upside potential if realized.
