Advanced Micro Devices (NASDAQ:AMD) hasn’t given investors much to cheer about lately. The stock has come under pressure amid concerns over the company’s slow progress in narrowing the AI chip gap with Nvidia, while macroeconomic and regulatory headwinds have further dampened sentiment toward this former Wall Street darling.
But as was evident in the chip giant’s Q1 results, AMD’s business is far from being in the doldrums. Revenue increased by 36% vs. the same period last year to reach $7.44 billion, beating the Street’s forecast by $320 million. Within that, Data Center revenue climbed by 57% year-over-year to $3.7 billion, driven by a strong performance from the MI300 AI accelerator, as well as the Instinct and EPYC processors. At the other end of the scale, adj. EPS of $0.96 beat Street expectations by $0.03.
The outlook was sound too; for the current quarter, AMD called for revenue between $7.1 billion and $7.7 billion, with the midpoint surpassing analysts’ $7.24 billion forecast. The company expects an adj. gross margin of 43%, impacted by approximately $800 million in inventory charges related to new export restrictions. Excluding these charges, the company said adj. gross margin would be around 54%.
Looking at the results, Bank of America analyst Vivek Arya thinks the bears might argue that the outperformance is driven by “near-term beats” in the consumer PC market, possibly boosted by tariff-related pull-ins. However, Arya believes the beats are “more from better mix (more ASP than units) and share gains.”
In fact, considering the stock’s recent underperformance (down 35% over the past year), the 5-star analyst finds the risk-reward “compelling” due to: “1) potential to deliver 20%+ topline growth in CY25E and CY26E, despite China headwinds, 2) continued share gains in PC/server CPU against INTC who remains in perennial restricting mode, 3) meetable/beatable targets for AI GPU sales ($6.2bn for CY25E, up 23% YoY, incl. $1.5bn China restriction headwind) with 2H acceleration on new MI350 product launch; and 4) EBIT margin upside towards 30% in CY27E vs 22% in CY25E, and 5) compelling valuation at 18x CY26E PE vs. 27% CY24-27E pf-EPS CAGR.”
Given the strength of the investment case, Arya is making a clear call: it’s time to load up on AMD. The analyst upgrades the stock from Neutral to Buy and raises his price target from $105 to $120, implying a 20% upside from where the stock currently trades. (To watch Arya’s track record, click here)
While Arya’s bullish stance finds plenty of support on Wall Street, the consensus isn’t unanimous. AMD holds a Moderate Buy rating, with 18 analysts backing the stock with Buys against 7 opting to stay on the sidelines. The average price target stands at $124.61, suggesting the potential for a 24% gain over the coming year. (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.