Advanced Micro Devices (NASDAQ:AMD) delivered better-than-expected third-quarter revenue and EPS. However, the company’s Q4 sales and gross margin outlook disappointed investors, posing a challenge for its stock. Nonetheless, Wall Street analysts’ average 12-month price target suggests that AMD stock could climb higher and deliver decent gains.
Let’s see why.
AI Offers Massive Growth Opportunity
AMD expects its Q4 revenue to be approximately $6.1 billion (plus or minus $300 million). This reflects an improvement on both a year-over-year and sequential basis. Analysts expected AMD to post revenue of $6.37 billion in Q4. Meanwhile, the company expects Q4 gross margin to be approximately 51.5%, which compares unfavorably to the analysts’ expectation of 52.1%.
The near-term weakness in the Gaming and Embedded segments will likely hurt its top line. However, long-term opportunities stemming from AI (Artificial Intelligence) could be catalysts. For instance, AMD’s CEO, Lisa Su, sees a multibillion-dollar growth opportunity in AI. During the Q3 conference call, Su said that AMD’s progress in AI, coupled with the purchase commitments from its cloud customers, Data Center GPU revenue will reach approximately $400 million in the fourth quarter and surpass $2 billion in 2024.
She added that MI300, AMD’s AI offering to compete with Nvidia (NASDAQ:NVDA), will be the fastest product in the company’s history to achieve $1 billion in sales. In the future, AMD’s investments in AI across its product portfolio will enable the company to gain a larger market share and help the company drive profitable growth in the long term.
Analysts Weigh In
Following the Q3 conference call, Goldman Sachs analyst Toshiya Hari reiterated the Buy recommendation on AMD stock. Highlighting the company’s 2024 Data Center GPU revenue outlook, Hari said, “AMD is well-positioned to participate in the large and growing Gen AI compute market.” The analyst maintains a price target of $125, which implies 26.9% upside potential from current levels.
Along with Hari, TD Cowen analyst Matt Ramsay reiterated a Buy on AMD stock post-Q3 earnings. While the analyst is bullish about the $2 billion Data Center GPU revenue guidance, he also expects the company to benefit from the recovery in the Client business and the “strong Genoa/Bergamo ramp taking place under the surface.” Ramsay termed AMD stock a “top pick.”
What is the Prediction for AMD Stock?
Given the near-term weakness in the Gaming and Embedded segments, Wall Street analysts are cautiously optimistic about AMD stock. With 20 Buy and seven Hold recommendations, AMD stock has a Moderate Buy consensus rating.
Further, the average AMD stock price target of $134.80 implies 36.85% upside potential from current levels.
