The Q3 earnings season is in full swing and there are plenty of interesting reports still to come this week. An intriguing one will be announced on Tuesday (October 31) after the markets close when Advanced Micro Devices (NASDAQ:AMD) will release its latest financial statement.
After a 1H23 defined by the substantial shift in spending towards GenAI and going by the guide provided by the chip giant on its prior earnings call, TD Cowen’s Matt Ramsay, an analyst ranked among the top 25 on Wall Street, views headwinds as “beginning to ease.”
During that call, AMD reiterated that it expects the Datacenter business to climb 50% higher in 2H23 compared to the year’s first half. “In our view,” says the 5-star analyst, “this was a key concern for investors coming into the call, and while the datapoints were positive, for some the 4Q implied Datacenter ramp of 45% Q/Q will still very much need to be proven.”
The situation became further unclear during the quarter due to Intel stating they anticipate datacenter inventory adjustment to continue for an additional two quarters, though it’s worth noting that Intel is considerably more affected by China and Enterprise. “That being said,” Ramsay goes on to add, “we see 50% H/H as the high end of expectations, but believe stronger 2024 growth is much more important.”
And that is the main point on which Ramsay’s positive thesis rests. Looking beyond the “noisy 2023 macro and the significant capex shift” toward Nvidia’s H100 servers at the beginning of the year, AMD’s increasing market share with Genoa (followed by the launch of the next-gen Turin) is expected to get a boost from the MI300, its next-gen data center APU while a gradual increase in market share in enterprise/China as the total addressable market (TAM) rebounds is also expected to take place. Additionally, AMD is making a foray into the telecommunications and networking sectors with the Siena CPUs while there should also be “much more stable fundamentals” in Client and Gaming.
Furthermore, the company seems well-equipped to try and close the gap on the runaway AI leader. “With a burgeoning but impressive MI300 roadmap, we believe AMD is laying the groundwork for an increasingly impressive set of offerings against a larger AI TAM where customers are clamoring for competition,” Ramsay summed up. “NVIDIA remains the leader no doubt, but we believe sizable opportunities remain.”
Accordingly, Ramsay rates AMD shares an Outperform (i.e. Buy) along with a $135 price target, indicating shares have room for 42% growth over the next year. (Watch Ramsey’s track record)
Most on the Street agree with that thesis. The analyst consensus rates AMD stock a Strong Buy based on a mix of 22 Buys vs. 7 Holds. The average target is slightly higher than Ramsay’s objective; at $136.74, the figure suggests the shares will appreciate ~44% in the year ahead. (See AMD stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
