Advanced Micro Devices (NASADQ:AMD) shares have been going through something of a correction recently, falling by 27% since the early March peaks.
Meanwhile, according to HSBC analyst Frank Lee, there has been a reset on market expectations for AMD’s MI300 series accelerators’ 2024 and 2025 revenue haul. The expectation now is for revenue between $4-5 billion this year and $9-10 billion in 2025, both below the prior call of $6-8 billion and $10-12 billion, respectively.
“However,” Lee goes on to say, “we also think that AMD has enough supply capacity and demand to surpass management’s AI GPU revenue guidance of >USD3.5bn in 2024, and we think management could raise guidance to above USD5bn vs our estimate of USD6.5bn.”
While the market has reset expectations, there is a shadow looming over in the shape of Nvidia and its new GB200 platform. Having already cornered the market for AI chips, the concern is that the MI300 won’t be able to compete with it. However, Lee thinks the MI300 is not about to directly compete with the GB200 but will go up against Nvidia’s current H100/H200 GPUs.
Lee anticipates the GB200 will find more of a match in AMD’s upcoming next generation AI chip solutions, such as the MI350/MI375/MI400, slated for a 2H 2024 launch.
In fact, Lee believes the AI TAM (total addressable market) will be big enough for more than just one participant, also thinking it is “unlikely for Nvidia to have 100% of the market share in AI GPU.”
Lee’s base case calls for a 10% market share for AMD by 2025, suggesting potential AI GPU revenue of $12.3 billion by then compared to the present sell-side consensus/previous forecast of $9.1 billion/$9.2 billion. In a bull case scenario, Lee sees AMD claiming a 15% market share, which could result in 2025 AI GPU revenue of $18.5 billion.
Lee’s upbeat take also factors in an anticipated boost from other parts of the business, with the analyst expecting to see an improvement in non-AI segments such as client and traditional servers.
To this end, Lee upgraded his AMD rating from Hold (i.e., Neutral) to Buy, while also raising his price target from $180 to $225. According to Lee, AMD could be worth about 46% more than it’s currently selling for. (To watch Lee’s track record, click here)
Lee now belongs in a group of 29 analysts who rate AMD shares a Buy, all countered by 6 Holds that can’t detract from a Strong Buy consensus rating. Going by the $202.32 average price target, a year from now, the stock will be changing hands for a 31% premium. (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.
