On Monday, Susquehanna maintained a Positive rating AMD (NASDAQ:AMD), but reduced the share price target to $185 from the previous $200. The adjustment comes ahead of the company's first-quarter earnings report scheduled for Tuesday, April 30.
The firm anticipates that AMD's guidance may be generally in line with expectations or slightly weaker, influenced by softness in the company's core operations. This could be partially balanced by the potential success of the MI300 product line.
Susquehanna's commentary noted a tempered enthusiasm for AMD's MI300 following competitive announcements at NVIDIA (NASDAQ:NVDA)'s GTC event. Despite this, the firm expects further upward revisions to MI300's guidance, which are viewed as necessary for AMD's share price to appreciate. The analyst predicts MI300's revenue could surpass $5 billion in 2024, despite a reduction in buy-side expectations, which previously reached approximately $8 billion.
In the data center CPU market, the firm continues to see AI server GPU purchases impacting CPU sales. However, AMD has indicated a possible uptick in traditional server spending in the second half of the year, driven by additional market share gains, particularly in the Enterprise segment. Intel (NASDAQ:INTC)'s observations of a data center CPU recovery in the latter half of the year could also signal a positive trend for overall spending.
For the client segment, the firm highlighted better than expected builds and sell-through for notebooks in the first quarter. Nevertheless, data suggests AMD may have lost market share in laptops and desktops, which could potentially reverse with the upcoming Zen 5 launch this summer.
Intel projects a stable PC market in the second quarter and robust growth in the second half, linked to AI PC adoption and the end of life for Windows 10, although Susquehanna expresses some skepticism regarding this driver.
In the embedded sector, while Intel anticipates a significant second-half performance, AMD is expected to see a boost from last-time buys as it discontinues certain FPGAs. The gaming division faces challenges with weaker console sales, and while graphics card sell-through remains subdued, AMD's GPU market share is stable, and prices have increased for the first time since the fourth quarter of 2021.
Overall, with gross margins expected to stay consistent and potentially improve in the second half due to a better MI300 mix and a recovery in the Xilinx (NASDAQ:XLNX) business, the firm anticipates guidance to align with or be slightly below expectations. The focus will be on the projected increase in MI300 guidance for 2024. The revised price target of $185 is based on an estimated 67 times the 2025 enterprise value to net operating profit after tax (EV/NOPAT).
InvestingPro Insights
As we approach AMD's earnings report, InvestingPro data shows a mixed financial landscape for the company. AMD's market capitalization stands strong at $254.38 billion, indicating a robust presence in the market. Despite a slight dip in revenue growth over the last twelve months with a -3.9% change, the company's quarterly revenue growth shows a more positive figure at 10.16% for Q1 2023. This could suggest a rebound in sales that aligns with Susquehanna's anticipation of guidance potentially improving in the latter part of the year.
InvestingPro Tips highlight that AMD is trading at a high earnings multiple, with a P/E ratio of 297.07, which may raise questions about valuation for potential investors. Nevertheless, the company is recognized as a prominent player in the Semiconductors & Semiconductor Equipment industry, which may justify the premium. Additionally, analysts remain optimistic about the company's profitability, expecting net income growth this year.
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