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HSBC upgrades AMD stock to Buy on massive AI TAM

Published 16/04/2024, 11:44
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In the wake of a recent pullback, AMD (NASDAQ:AMD) stock is receiving a shot in the arm from HSBC (LON:HSBA)'s bullish upgrade. This upgrade comes after a period of decline for AMD, which investors will be hoping signals a turn-around for the chipmaker.

In notes on Monday, analysts at BofA and Morgan Stanley (NYSE:MS) shared their thoughts on AMD.

BofA analysts said they continue to like AMD, citing the chipmaker’s consistent performance and growing opportunities in the lucrative compute and AI markets. In addition, they find the sales forecast for the current year, CY24E, to be achievable.

However, the investment bank has concerns about the company’s response to the increasing competition in AI accelerators.

“There are also concerns about AMD’s exposure to lower-yielding HBM3 (Samsung (KS:005930)) versus rivals working closer with higher-yield HBM3E (Hynix/Micron),” wrote BofA.

Meanwhile, Morgan Stanley analysts stated that compute remains the central area of interest in the new reporting season, with AI exposure increasingly seen as the key driver of alpha generation.

“All eyes are on AMD, with a very polarized view,” said Morgan Stanley analysts. “There continues to be a significant focus on the CY24 AI #, whereas our focus is more on the question of how solid that foundation can be for growth in CY25 and beyond.”

“Our guess is that the number can still come up; despite recent angst, we see no change from the supply chain,” they added.

Morgan Stanley also voiced concerns for AMD regarding NVIDIA Corporation's (NASDAQ:NVDA) aggressive price per teraflop for the Blackwell ramp next year. “We need to see AMD’s response to this,” they declared.

Despite those concerns, analysts at HSBC have become more bullish on AMD.

HSBC upgrades AMD stock to Buy

In a note to clients Tuesday, the bank said the artificial intelligence total addressable market is “more than enough to go around.” The firm upgraded AMD to Buy, raising the price target to $225 from $180 per share.

HSBC is confident that AMD has enough supply capacity and demand to surpass management’s AI GPU revenue guidance of over $3.5 billion in 2024, and they think management could raise guidance to above $5 billion compared to their estimate of $6.5 billion.

Furthermore, despite market concerns about Nvidia’s dominance with its GB200 platform in 2025, HSBC believes AMD’s MI300 is not a direct competitor to the GB200 but more to the existing H100 and H200 GPUs.

“We expect AMD’s next generation AI chip solutions, such as the MI350/MI375/MI400 to be launched in 2H 2024, to be more direct competition to Nvidia’s GB200,” said HSBC analysts.

“We also think it is unlikely for Nvidia to have 100% of the market share in AI GPU; our base case assumes AMD captures 10% share by 2025 implying potential AI GPU revenue of USD12.3bn by 2025 vs the current sell-side consensus/previous forecast of USD9.1bn/USD9.2bn.”

Elsewhere, it is also noted that the non-AI momentum is showing signs of improvement into the second quarter of 2024. The bank expects non-AI momentum for both client and traditional servers to start to see improvement along with MI300 revenue of $648 million and $1.1 billion in the first and second quarters of 2024.

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