{"id":59260,"date":"2024-01-26T06:00:26","date_gmt":"2024-01-26T11:00:26","guid":{"rendered":"https:\/\/www.ino.com\/blog\/?p=59260"},"modified":"2024-01-26T17:16:34","modified_gmt":"2024-01-26T22:16:34","slug":"examining-amd-as-a-high-growth-long-duration-asset-amid-chip-optimism","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2024\/01\/examining-amd-as-a-high-growth-long-duration-asset-amid-chip-optimism\/","title":{"rendered":"Examining AMD as a High-Growth, Long-Duration Asset Amid Chip Optimism"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Since the inception of civilization, humanity has perpetually sought the next groundbreaking advancement, extending across diverse fields, including entertainment, fashion, and technology. It is the forecasters, with one foot in the present and the other steering toward the future, whose evolutionary visions brought about automobiles, airplanes, and the internet.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">While such visionaries may not always accurately predict the future, their ambitions fuel our relentless quest for innovation. In the spotlight recently has been Artificial Intelligence (AI), notably after OpenAI unveiled ChatGPT, a comprehensive language model that millions employ for diverse purposes such as searching, parsing, and content creation.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In the current digital era, the significance of semiconductors is evident. Powering an extensive array of devices from smartphones to aircraft, these components enhance the utility of modern electronics and act as technological accelerators, driving advancements in AI, machine learning, and quantum computing.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The<\/span><a href=\"https:\/\/www.globenewswire.com\/news-release\/2023\/09\/18\/2744541\/0\/en\/Semiconductor-Market-Size-1028797-04-Billion-by-2030-at-CAGR-of-9-18-CAGR-which-is-Booming-Strong-Growth-in-the-Globe-till-2030.html#:\"> <span style=\"font-weight: 400;\">semiconductor industry<\/span><\/a><span style=\"font-weight: 400;\"> displays robust growth and is expected to expand at a CAGR of 9.18% by 2030, reaching $1.03 trillion.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The surge in demand for AI applications across different sectors for effective big data management serves as a key factor propelling the worldwide AI chip market's growth. Consequently, the market is anticipated to reach about<\/span><a href=\"https:\/\/finance.yahoo.com\/news\/artificial-intelligence-chip-market-grow-220000120.html#:~:\"> <span style=\"font-weight: 400;\">$372.01 billion in 10 years<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Additionally, the rising requirement for quantum computing, especially for handling mammoth datasets linked to operational efficiency, is gaining increased prominence, which is forecasted to drive substantial market expansion.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Chip giant<\/span><a href=\"https:\/\/quotes.ino.com\/charting\/?s=NASDAQ_AMD\"> <span style=\"font-weight: 400;\">Advanced Micro Devices, Inc. (AMD)<\/span><\/a><span style=\"font-weight: 400;\"> is set to officially join the AI chip competition in 2024. At the beginning of the second half of 2023, the tech titan announced the forthcoming MI300x GPU chipset.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">According to AMD, the AI chip market, valued at<\/span><a href=\"https:\/\/www.reuters.com\/technology\/amd-forecasts-45-billion-ai-chip-market-this-year-2023-12-06\/\"> <span style=\"font-weight: 400;\">$45 billion<\/span><\/a><span style=\"font-weight: 400;\">, is predicted to soar nearly tenfold to $400 billion by 2027. With an eye on this lucrative landscape, AMD's newly developed MI300X chipset is designed to vie with the AI-darling Nvidia Corporation\u2019s (NVDA) flagship H100 for AI data center clientele.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">According to AMD's forecasts, the new chips will generate an additional $2 billion in sales in 2024 \u2013 a figure some deem conservative considering the immense potential of the total addressable market. In contrast, analysts at Barclays project a figure<\/span><a href=\"https:\/\/www.cnbc.com\/2024\/01\/16\/amd-shares-rise-jump-7percent-and-head-for-highest-close-since-2021.html\"> <span style=\"font-weight: 400;\">closer to $4 billion<\/span><\/a><span style=\"font-weight: 400;\"> \u2013 translating to roughly 18% growth rate based on AMD's trailing-12-month revenue, assuming all other business operations remain steady.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Over the past three and five years, AMD\u2019s revenue grew at CAGRs of 36.8% and 28.2%, respectively, while its levered FCF grew at 68.2% and 84.4% CAGRs over the same periods.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For the fiscal third quarter that ended September 30, 2023, AMD delivered strong revenue and earnings growth fueled by rising demand for its Ryzen 7000 series PC chips and an all-time high in server processor sales. Its revenue for the quarter stood at $5.80 billion, up 4.2% year-over-year.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">AMD's data center business is on a significant growth trajectory, rooted in the strength of its EPYC CPU portfolio and the accelerated shipments of Instinct MI300 accelerators. These factors have fortified multiple deployments across hyper-scale, enterprise, and AI customer frameworks.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Moreover, its non-GAAP net income and net income per share increased 3.7% and 4.5% from the year-ago quarter to $1.14 billion and $0.70, respectively.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">AMD is scheduled to report fourth-quarter earnings on January 30, 2024. AMD EVP, CFO and Treasurer Jean Hu said, \u201cIn the fourth quarter, we expect to see strong growth in Data Center and continued momentum in Client, partially offset by lower sales in the Gaming segment and additional softening of demand in the embedded markets.\u201d<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Wall Street expects AMD\u2019s revenue and EPS for the fiscal fourth quarter ending December 2023 to be $6.14 billion and 77 cents, up 9.6% and 11.6% year-over-year, respectively. If it delivers on those estimates, it will mark the fastest sales growth in one year. The company has surpassed the consensus revenue and EPS estimates in all of the trailing four quarters, which is impressive.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Shares of AMD jumped 5.9% on January 24, soaring above 140% over the past year. Since October, AMD has seen an approximate increase of 65%, comfortably outperforming the AI darling NVDA and the Philadelphia Semiconductor Index during this period. The S&amp;P 500 registered just a 15% uptick.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This week alone, AMD surged above 12%, trouncing NVDA's increase. The significant leap in AMD shares is attributed mainly to the burgeoning potential to secure a prominent slice of this year's AI chip market.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Additionally, this week saw a significant boost when several notable analytics firms \u2013 including Barclays Plc, Susquehanna Financial, and TD Cowen \u2013 elevated their price targets for AMD.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Barclays emerged with the loftiest target at $200 per share, surging from $120. This optimistic adjustment primarily stems from high expectations for artificial intelligence as a key growth stimulant. Notably, over 70% of analysts monitoring AMD are recommending a<\/span><a href=\"https:\/\/finance.yahoo.com\/news\/amd-record-high-shows-ai-154023189.html\"> <span style=\"font-weight: 400;\">buy-equivalent rating<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, Wall Street analysts expect the stock to reach about $156 in the next 12 months, indicating a potential<\/span><a href=\"https:\/\/www.tipranks.com\/stocks\/AMD\/forecast\"> <span style=\"font-weight: 400;\">downside of 12.6%<\/span><\/a><span style=\"font-weight: 400;\">. The price target ranges from a low of $105 to a high of $215.<\/span><\/p>\n<p><b>Bottom Line<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Growth projections from AMD\u2019s MI300X chip family are a lot to receive from one type of product. Should AMD's ambitious forecasts regarding AI chip demand materialize, investors could anticipate a considerable escalation in sales in a couple of years.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Investors should remain aware that the AI sector does not exclusively entail a winner-take-all scenario. The market\u2019s rapid expansion could allow multiple companies to carve out their successes. Although entering the market later than others, AMD may establish a competitive edge through cost-effectiveness, nurturing an esteemed standing within a balanced and diversified investment portfolio.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The early adopters of the MI300A\/X are unlikely to obtain high profits initially \u2013 they will enjoy competitive pricing until demand gains traction. By nature, building momentum takes time, and if AMD stays true to its usual course of action, it will focus on long-term progress rather than immediate financial gain.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">AMD's stock price could fluctuate significantly, and despite positive reports and guidance, it may take several estimated returns to invoke a maximum increase. This is because AMD must substantiate its guidance, requiring, at a minimum, another quarter to validate and replicate its success.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Moreover, there are significant issues like demonstrating market competitiveness, particularly concerning software adoption. Some investors view AMD's rival, NVDA, as a dominant player in the GPU space. For AMD to make its mark, it must prove its ability to lead on its terms, complementing its other endeavors. This validation process will require time and consistency.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">While waiting, macroeconomic risks persist, ranging from ongoing wars to the potential of economic recession and fluctuating interest rates. Staying the course involves maintaining progress amid potentially adverse circumstances.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">From an investment standpoint, it is critical to acknowledge AMD's forward non-GAAP P\/E multiple of 67.17, signaling that AMD's stock is substantially more expensive than the industry average.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Furthermore, AMD's 12.71x forward P\/S is 330% greater than the industry average of 2.95x. Its revenue has increased at a modest CAGR over the past three years, and analysts predict a 15% annual growth rate for the next three years. However, these projections are less robust than the industry average, suggesting a potential shortfall in expected revenue for AMD. It is thus concerning that AMD\u2019s P\/S supersedes most within the same industry.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The disquieting underperformance in its revenue projections spells potential risk for AMD\u2019s elevated P\/S. If the anticipated revenue trend doesn\u2019t take an upward turn, it could negatively impact the already high P\/S. Given the current market prices, it would be prudent for investors to exercise caution, particularly if the situation fails to enhance.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Therefore, investors could wait for a better entry point in the stock.<\/span><\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>Since the inception of civilization, humanity has perpetually sought the next groundbreaking advancement, extending across diverse fields, including entertainment, fashion, and technology. It is the forecasters, with one foot in the present and the other steering toward the future, whose evolutionary visions brought about automobiles, airplanes, and the internet. While such visionaries may not always [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":41,"featured_media":56144,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[33511,33510,32228,33508,33509,33507,32229,33512],"class_list":["post-59260","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-372-01-billion-in-10-years","tag-45-billion","tag-advanced-micro-devices","tag-buy-equivalent-rating","tag-closer-to-4-billion","tag-downside-of-12-6","tag-inc-amd","tag-semiconductor-industry"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.4 (Yoast SEO v23.6) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Examining AMD as a High-Growth, Long-Duration Asset Amid Chip Optimism - INO.com Trader&#039;s Blog<\/title>\n<meta name=\"description\" content=\"Chipmaker Advanced Micro Devices (AMD) has positioned itself as a key competitor by tirelessly innovating to design the necessary hardware for a swiftly shifting technological environment fueled by AI. 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