Advanced Micro Devices (NASDAQ:AMD) has had a year marked by considerable volatility in the stock market. What started as a continuation of the impressive gains achieved in 2023 has recently turned sour, with AMD’s shares experiencing a notable decline of about 27% over the past four months. This downturn reflects growing skepticism about AMD’s ability to maintain its competitive edge, especially in the high-stakes AI chip market where it has been seen as a potential rival to Nvidia.
Despite AMD’s ambition to challenge Nvidia’s dominance in the AI chip sector, doubts have emerged about its effectiveness in this role. Christopher Rolland, a distinguished analyst from Susquehanna who is highly rated among his peers, provides a nuanced perspective on the situation. According to Rolland, AMD’s recent decision to increase its 2024 revenue guidance for the MI300 accelerator—from over $3.5 billion to over $4 billion—was anticipated by investors. The additional $500 million was seen as a conservative adjustment rather than a substantial surprise, leading to a degree of disillusionment among stakeholders.
Rolland remains hopeful about AMD’s future performance. He believes that the company will be able to significantly ramp up the supply of the MI300, particularly in the latter half of the year. Rolland projects that sales of the MI300 could potentially reach around $5 billion in 2024, which would represent a substantial increase. This optimism is reflected in his forecasts for AMD’s second-quarter 2024 earnings, which he expects to show revenue of $5.72 billion and a Non-GAAP EPS of $0.68. The performance of the MI300 will be a critical focal point in this earnings report, as it is central to AMD’s strategy and future growth prospects.
However, the situation is not without its risks. Rolland points out that there are growing concerns about potential cancellations of MI300 orders from major clients like Microsoft and Alibaba. These cancellations could be driven by competitive advances from Nvidia’s new GB200 platform or issues related to AMD’s internal high-bandwidth memory (HBM) qualification. Such concerns have led to increased scrutiny of AMD’s 2024 guidance and have cast a shadow over the company’s prospects for further upside.
Despite these challenges, the overall sentiment towards AMD remains relatively positive. Rolland maintains a Positive (Buy) rating on AMD shares, setting a price target of $200. This target implies a potential increase of 42% over the coming year, reflecting a strong belief in AMD’s ability to rebound and deliver substantial returns. This positive outlook is echoed by the broader analyst consensus, which rates AMD as a Strong Buy based on a combination of 30 Buy ratings and 6 Hold ratings. The average price target of $195.03 suggests a projected appreciation of approximately 39.5% for the stock over the next 12 months.
In summary, while AMD faces significant challenges, particularly in the competitive AI chip market and amid concerns about potential order cancellations, there is still a prevailing sense of optimism among analysts. The company’s ability to navigate these hurdles and leverage its growth opportunities will be crucial in determining its future performance. Investors should remain informed and consider these factors when evaluating AMD’s stock prospects.