On Wednesday, Truist Securities adjusted its outlook on shares of Advanced Micro Devices (NASDAQ:AMD), reducing the price target to $156 from the previous $162, while continuing to recommend a Hold on the stock. The revision followed the company's recent financial performance update, which included a better-than-expected second quarter and a third-quarter forecast with mixed implications.
AMD reported a strong second quarter, surpassing consensus estimates and providing a third-quarter guidance that presented a nuanced outlook. The firm's performance in the Datacenter and Client segments is expected to drive investor sentiment.
Management's update, which increased the sales forecast for the MI300 from $4 billion to $4.5 billion for the current year, was positively noted for indicating a growing and strengthening market presence for the product.
Despite these positive indicators, Truist Securities expressed longer-term reservations about AMD's market position. The firm anticipates AMD's role in artificial intelligence (AI) to be limited when compared to competitors like NVIDIA (NASDAQ:NVDA), which Truist rates as a Buy. Additionally, there is an expectation that the X86 market, where AMD is a key player, will gradually face more competition from emerging CPU manufacturers.
The decision to adjust the price target was also influenced by a downward revision in the earnings per share (EPS) estimate for the calendar year 2025, which decreased by 3 cents to $5.04. The new price target of $156 is based on a 31 times multiple, aligning with the valuation of peers in the datacenter segment. This multiple reflects the industry standard for similar companies within the market.
In other recent news, Advanced Micro Devices (AMD) has revised its 2024 revenue forecast for artificial intelligence (AI) chips upwards by $500 million, while also predicting that supply issues will persist until 2025.
AMD's upward revision was driven by a surge in AI chip demand. The company's second quarter results showed a 115% increase in data center revenue, reaching $2.8 billion, slightly surpassing the expected $2.79 billion. This marked the first time AMD's AI chip revenue within the data center segment exceeded $1 billion.
AMD's AI chips are utilized by significant tech companies, including Meta Platforms (NASDAQ:META) and Microsoft (NASDAQ:MSFT), which earlier this year offered access to AMD's AI chips through its cloud service. For the third quarter, AMD projects revenues to be around $6.7 billion, with a possible variation of $300 million, compared to the average analyst expectation of $6.61 billion. The expected adjusted gross margin for the third quarter is approximately 53.5%, closely aligning with the estimated 53.6%.
In other recent developments, AMD announced the retirement of its President, Victor Peng, set for August 30, 2024. After his retirement, Peng will remain in an advisory role to aid the transition.
Vamsi Boppana, Senior Vice President of the Artificial Intelligence Group, will take on additional responsibilities overseeing the AMD Instinct data center AI accelerator business, while Salil Raje, Senior Vice President and General Manager of the Adaptive and Embedded Computing Group, will maintain his current role leading AMD's embedded business.
Lastly, AMD has announced the acquisition of Silo AI in an all-cash deal valued at approximately $665 million. Stifel maintained a Buy rating on AMD shares following this acquisition, emphasizing the importance of a comprehensive AI stack in the competitive landscape. These are among the recent developments for AMD.
InvestingPro Insights
As investors digest the latest updates and analyst opinions on Advanced Micro Devices (NASDAQ:AMD), real-time data from InvestingPro provides additional context for the stock's current valuation and performance. AMD's market capitalization stands at a robust $223.76 billion, reflecting its significant presence in the industry.
The company's price-to-earnings (P/E) ratio is notably high at 198.73, which aligns with Truist Securities' observation that the stock is trading at a high earnings multiple. This could suggest that investors are expecting high future earnings growth, despite the stock's recent volatility, as indicated by a price total return of -14.65% over the last month.
On the operational front, AMD has demonstrated a strong gross profit margin of 50.56% over the last twelve months as of Q1 2024, underscoring its ability to maintain profitability in a competitive landscape. This is complemented by an InvestingPro Tip highlighting that the company's liquid assets exceed its short-term obligations, which may provide a degree of financial stability amidst market fluctuations.
For those considering an investment in AMD, it is worth noting that there are additional InvestingPro Tips available that delve deeper into the company's financial health and market position. Subscribers to InvestingPro can access a comprehensive list of 15 tips that offer insights into AMD's growth expectations, valuation multiples, and stock performance history. To explore these insights and enhance your investment strategy, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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