AMD

Is AMD Stock a Buy Now? Here’s What You Need to Know

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Despite its size and business nature, semiconductor company Advanced Micro Devices (NASDAQ:AMD) may not reach a trillion-dollar market cap like Nvidia (NASDAQ:NVDA) in the AI market. While its GPUs suit AI platforms, Nvidia dominates this market, and Intel (NASDAQ:INTC) leads in the personal computing market.

However, AMD’s client business revenue increased to $1.4 billion, which was an 85% increase from 2022. Introducing the Ryzen Pro 8000 series and expansions boosted revenue and market share. Recent collaborations with partners like Lenovo and HP strengthen AMD’s position in the PC market.

If you’re part of the group of investors still thinking of buying AMD stock, here’s everything you need to know about the company as of late.

Q1 Beats Estimates

After reporting Q1 earnings on April 30, the chipmaker’s shares fell, despite meeting revenue expectations at $5.5 billion, a 2.2% annual increase. Adjusted EPS reached $0.62, up 3.3% year over year, narrowly exceeding analyst forecasts. 

Data center revenue surged 80% to $2.3 billion, driven by the MI300 series, while the client segment rose 85% to $1.4 billion. Despite declines in gaming and embedded segments, a rebound is expected later in the year.

MI300 accelerator sales surpassed $1 billion since Q4 2023, powering cloud operations for giants like Google, Amazon, and Oracle.

AMD’s EVP, CFO, and Treasurer Jean Hu stated, “We’re positioned to drive revenue growth and margin improvement, investing in large AI opportunities.” Q2 revenue is projected at $5.7 billion, up 4% sequentially and 6% annually.

AI chip sales are expected to hit $4 billion this year, surpassing the January 2024 forecast of $3.5 billion. Analysts foresee AMD’s EPS reaching $2.62 in fiscal 2024, up 31.7% annually, and rising to $4.40 in fiscal 2025, a 67.9% increase.

Last week, AMD’s quarterly results met expectations, with revenue in line and updated guidance as forecasted. However, investors sold AMD stock due to a 48% drop in gaming unit sales despite an 80% increase in data center sales.

Investors were disappointed by AMD’s updated 2024 MI300 sales forecast. Despite a revision to $4 billion, below some analysts’ $8 billion projections, the stock dropped 9%. This cautious outlook may lead to further declines, but selling AMD might be regretted in the long run.

The Stock Is Still a Buy

Future growth opportunities abound. Mordor Intelligence projects a 33% annualized growth in the GPU market until 2029. Markwide Research suggests a 6% yearly growth in the CPU market for the same period.

The consensus analyst prediction is that AMD’s revenue will increase by nearly 13% this year, reaching 28% growth next year, with similar growth anticipated in the following years.

AMD’s post-earnings decline wasn’t unexpected. Sentiment had turned bearish on the AI chip play. While some sold due to lowered expectations, this is shortsighted. Reasons for optimism include AMD’s AI-PC chip rollout and positive macro factors.

In retrospect, the market overestimated AMD’s potential earlier this year, leading to a double-digit drop from highs above $225. However, current prices no longer reflect future solid potential. Positive catalysts could lead to earnings surpassing expectations and potentially re-rating to $200 or even $250 per share within a year. 

If you own AMD stock, holding tight could be the right move right now.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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