Advanced Micro Devices (AMD), a prominent player in the semiconductor industry, recently released its first-quarter earnings report, which showcased better-than-anticipated results both in terms of revenue and earnings. Despite this positive performance, investors responded with disappointment, leading to a significant decline in AMD’s stock price.
During the first quarter, AMD reported revenue of $5.47 billion, marking a 2.2% year-over-year increase and surpassing the consensus estimate by $20 million. Notably, the company witnessed substantial growth in its data center segment, with revenue soaring by an impressive 80% year-over-year to reach a record-breaking $2.3 billion. Additionally, AMD’s adjusted earnings per share (EPS) stood at $0.62, outpacing analysts’ forecasts by $0.01.
Looking ahead to the second quarter, AMD issued revenue guidance of $5.7 billion, plus or minus $300 million, aligning with analysts’ expectations. This outlook implies a year-over-year revenue growth rate of approximately 6% at the midpoint and a quarter-over-quarter growth rate of around 4%.
Despite these favorable financial figures, investors expressed disappointment, particularly regarding AMD’s projections for sales of its MI300 accelerators. Although CEO Lisa Su indicated that MI300 sales are anticipated to surpass $4 billion for the year, this estimate fell short of prior guidance, which had suggested sales reaching $3.5 billion. The disparity between the forecast and previous expectations likely contributed to investor dissatisfaction.
Bank of America analyst Vivek Arya, however, views AMD’s conservative outlook for MI300 sales as potentially advantageous. Arya believes that setting a relatively low bar could provide AMD with the flexibility to exceed expectations and potentially capture a larger share of the market. He anticipates that AMD could secure between 5% to 10% of the $90 to $100 billion accelerator market, driven by the impending launch of its next-generation MI350 accelerator. Additionally, Arya highlights AMD’s ongoing market share gains against competitors like Intel in the PC and server CPU segments, as well as potential growth opportunities in the embedded sector.
Despite revising his price target from $195 to $185, Arya maintains a bullish outlook on AMD, rating the stock as a Buy. His optimism is echoed by many of his peers, resulting in AMD currently boasting a Strong Buy consensus rating among analysts. With the average price target standing at $194.42, AMD’s shares could potentially experience a substantial upside of approximately 36% over the next year.
In summary, while AMD’s first-quarter performance may have fallen short of certain investors’ expectations, analysts like Arya remain optimistic about the company’s long-term growth prospects, particularly given its strong position in the semiconductor market and potential for market share expansion.
