Stock Analysis & Ideas

AMD Stock: Is the Dip an Investment Opportunity?

Story Highlights

AMD stock has declined despite strong demand. New product launches and an expansion of its TAM bode well for growth.

Shares of the semiconductor giant Advanced Micro Devices (NASDAQ: AMD) have lost substantial value this year. For instance, AMD stock has dropped over 43% year-to-date on fears of a slowdown in the end market amid economic reopening, supply constraints, and lockdown in China. 

Now What?

While AMD stock has declined quite a lot, the fear of a slowdown in demand hasn’t played out yet. AMD continues to deliver robust revenue growth on the back of solid demand trends. During the last reported quarter, each of AMD’s businesses registered double-digit growth.

Moreover, at its analyst day, the company reiterated its full-year guidance, citing ongoing strength in its business. Furthermore, management is upbeat and expects its top line to grow at a CAGR of 20% in the medium term. The expansion of TAM (total addressable market), new product launches, and the Xilinx acquisition bode well for growth. 

Highlighting AMD’s analyst day guidance, Susquehanna analyst Christopher Rolland stated, “Specifically, we note the ~20% top-line CAGR, >57% GM [gross margin], and mid-30% OM [operating margin] guides, which were all generally in-line with our prior expectations for the day. If properly executed, we note the new model could drive nearly ~$7 of EPS in 2025, with more than half of revenue expected to come from data center and embedded end markets.”

Rolland is bullish on AMD stock. Moreover, his price target of $140 represents 71.6% upside. 

Contrary to Rolland, Robert W. Baird analyst Tristan Gerra expects a deceleration in AMD’s growth. Gerra stated, “At its analyst day, AMD reiterated its full-year guidance, citing strength in data center, Xilinx, and PC mix. However, given concerns around an abrupt slowdown in PC demand, weakening consumer GPU trends, and much tougher comps for 2023, investors are likely to stay on the sidelines.”

Gerra, who remains sidelined on AMD stock, added that competition from Intel (NASDAQ: INTC) could pose challenges for AMD in the medium term.

Bottom Line  

The ongoing strength in demand, new product launches, and the expansion of TAM bode well for AMD’s future growth. Further, management’s upbeat guidance is positive. 

However, Wall Street is cautiously optimistic about AMD stock on concerns about a slowdown in growth and competition. AMD stock has received 14 Buys and 10 Hold recommendations for a Moderate Buy consensus rating. Meanwhile, the average AMD price target of $138.40 implies 69.7% upside potential to current levels.


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