“Melius Research,” a name that doesn’t cross our ears frequently. And even when it does, this specialized equity research firm, established in New York City back in 2017, is better known for its research into such esoteric fields as robotics, new mobility, renewable energy, and space travel. Every once in a while, though, Melius publishes a report about a stock you’ve actually heard about — and today is one such day.
Melius head of technology research Ben Reitzes published a report on the red-hot field of artificial intelligence, and recommended that investors take a look at semiconductor powerhouse Advanced Micro Devices (NASDAQ:AMD) as a good way to play the trend of more AI everything in 2024.
Generative AI, writes Reitzes, is going to have a “halo effect” across everything tech in 2024, even as it starts generating “more material… revenues” for companies providing generative AI services. And AMD could be one of the biggest beneficiaries of this trend.
Indeed, much like investors saw the AI business turbocharge revenues at AMD rival Nvidia (NASDAQ:NVDA) in 2023, 2024 could be the year that AMD’s own MI300X accelerator chips create a “surge” in new revenues for AMD on “huge ramps for AI equipment” in the New Year.
And this trend won’t end in 2024, either.
“We expect growth from AI to be sustained throughout the decade,” says Reitzes. 2024 revenues from AI accelerator chips such as the MI300X could reach $2 billion, according to AMD itself. But Reitzes is clambering out on a limb and predicting “double” that amount, as cloud providers buy the new chips to supplement (or substitute for) chips from Nvidia.
The analyst actually foresees everyone from Dell to Hewlett-Packard Enterprise to Lenovo beginning to sell AMD-powered AI servers this year. What’s more, in 2025 he forecasts a second doubling in accelerator revenue at AMD, to $8 billion, helping to fuel a total of 35% revenue growth in the company’s data center business.
Reitzes sees similar opportunities in “edge AI” — putting artificial intelligence capability directly on the electronic devices that consumers carry around in their pockets, so that AI requests don’t have to travel hither and yon among the Interwebs, creating lag in response between question and answer. Here, too, the analyst sees the MI300X accelerator as key, describing it as “well suited for this [on-device] workload given its high-bandwidth memory.”
Reitzes predicts that AMD’s data center business will grow 75% year over year in 2024, to $11.4 billion, and then grow a further 37% to $15.5 billion in 2025. I know, I know. Just a couple paragraphs ago he was saying”35%.” But apparently, the numbers here are evolving quickly enough to grow another couple of percent even in the time it took him to type the second prediction. For that matter, Reitzes further predicts 27% growth in 2026. Don’t be surprised when that estimate changes as well.
However the estimates finally shake out, though, Reitzes’ conclusion is the same: AMD stock is a “buy,” and he thinks the stock can reach $188 by the end of this year. Investors stand to score a 26% gain, should Reitzes’ thesis go according to plan in the year ahead. (To watch Reitzes’ track record, click here)
AMD has strong support amongst Reitzes’ colleagues on Wall Street, but its current valuation presents a conundrum. AMD’s Strong Buy consensus rating is based on 27 Buys and 7 Sells. However, the $142.22 average price target now suggests shares will decline ~5% over the next 12 months. It will be interesting to see whether the analysts raise their price targets or downgrade their ratings over the coming months. (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.
