Since peaking in early March, Advanced Micro Devices (NASDAQ:AMD) shares have retreated by 23%. Bank of America’s Vivek Arya says the drop is partly down to geopolitical issues with China, where the government has been instructing its biggest telecom carriers to gradually stop using foreign chips that are essential to their networks. AMD is one of the companies that will be affected by such a move.
But for Arya, an analyst ranked in 10th spot amongst the thousands of Wall Street stock pros, there is another potential issue looming that could impact the chip giant.
First off, the 5-star analyst makes clear he is a fan of AMD, a company admired for its “proven execution and expanding opportunity in attractive compute/AI markets.”
Moreover, to meet Street expectations for total sales in CY24, the company only needs ~$4 billion in incremental sales between Q2-Q4 from annualized Q1 levels. Given the MI300’s ramp and “seasonal recovery in PC and traditional server CPU demand,” that seems doable to Arya.
And over the near-term, Arya thinks AMD will beat the forecast for MI300 sales of >670 million in Q1 and probably increase CY24E expectations from $3.5 billion to more than $4 billion.
However, the problem lies further down the line with Arya “concerned AMD has not yet firmly responded to rising competitive intensity in AI accelerators from NVDA (Blackwell) and custom chip rivals (AVGO, MRVL).”
That makes 2025 trickier, given consensus has MI300 sales reaching $9 billion and representing a market share of 7-8%. In fact, Arya reckons bull-case investor expectations are likely $12-$15 billion, accounting to a 10-15% share. Yet, Arya thinks the latest “competitive trends could make CY25E tougher to achieve.”
That’s because Nvidia has announced its Blackwell GPU, which boasts a 2x-5x boost in performance vs. its AI “workhorse” Hopper while custom chip rivals Broadcom and Marvell also pose threats of their own. Additionally, Arya cites “concerns about AMD’s exposure to lower-yielding HBM3 (Samsung) versus rivals working closer with higher-yield HBM3E (Hynix/Micron).”
So, how can AMD handle these bearish arguments? Arya thinks CEO Lisa Su’s keynote at Computex 2024 in early June could go a way toward assuaging investor fears by highlighting AMD’s ability to: “1) leverage industry-first chiplet architecture to move faster to the 4/3nm node (vs. NVDA Blackwell and rivals all on 5nm/4nm); 2) move from HBM to HBM3E; 3) scale accelerators to more than 8 GPUs/node via interworking between AMD infinity fabric and AVGO next-gen PCIe switches (effectively a counter to NVDA NVLink); and 4) Continue software progress.”
For now, Arya rates AMD shares a Buy, while his $195 price objective suggests the shares will post growth of 19% in the months ahead. (To watch Arya’s track record, click here)
Amongst Arya’s colleagues, 29 other analysts join him in the bull camp, while 6 remain on the sidelines recommending a Hold, all coalescing to a Strong Buy consensus rating. The forecast calls for one-year returns of 23%, considering the average price target stands at $202.25. (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.
