The robust demand for Nvidia’s (NASDAQ:NVDA) graphics processing units (GPUs) in generative artificial intelligence (AI) models and the company’s solid financials have overshadowed the growth potential of Advanced Micro Devices (NASDAQ:AMD). NVDA stock has rallied 198% year-to-date, while AMD shares are up 59%. However, most analysts covering AMD stock remain bullish on the company’s long-term growth story and expect its upcoming AI offerings to drive its performance.
Analysts Remain Bullish on AMD Stock
AMD’s results in the first half of the year were significantly impacted by the weakness in the PC market. However, CEO Lisa Su assured investors of a significant boost in the performance of the Data Center business in the second half of the year, mainly towards the fourth quarter.
As per the company, its AI engagements increased by over seven times sequentially in the second quarter, as multiple customers initiated or expanded programs supporting future deployments of its MI250 and MI300 accelerators at scale. The company is particularly optimistic about its Data Center business benefiting from the demand for MI300 accelerators, production for which is expected to ramp up in the fourth quarter. AMD calls its Instinct MI300X GPUs the world’s most advanced accelerators for generative AI.
On September 20, Wells Fargo analyst Aaron Rakers reaffirmed a Buy rating on AMD stock with a price target of $150. The analyst said that he was “incrementally more positive” following a meeting with CEO Su and CFO Jean Hu about the company’s growth potential in AI, backed by the ramp-up of MI300 GPUs.
Rakers noted that AMD is particularly positive on the MI300X’s positioning for large language model (LLM) inferencing. He added that AMD reiterated its expectation for the total addressable market for Data Center AI accelerators to grow to $150 billion over the next 3 to 4 years. The company projects AI inference to account for two-thirds of this opportunity, with an inflection expected by 2025.
Like Rakers, Goldman Sachs analyst Toshiya Hari is also upbeat about AMD. Hari reiterated a Buy rating on the stock with a price target of $137 following a technology conference in early September. Discussing the key takeaways from the conference, the analyst said that AI remains the top priority for the management and the largest secular driver for the company.
Regarding the accelerators vs. CPU debate, Hari noted that management expects a good balance between compute and accelerators going forward, “particularly as it begins to lap you [year-over-year] comps impacted by headwinds stemming from customers workload optimization.”
Overall, management remains comfortable with its long-term financial expectations, including revenue growth of about 20% CAGR, over 57% gross margin, mid-30s earnings before interest and tax (EBIT) margin, and more than 25% free cash flow margin.
Is AMD a Buy or Sell Now?
Wall Street’s Strong Buy consensus rating on Advanced Micro Devices stock is based on 22 Buys and seven Holds. The average price target of $140.25 implies 36.4% upside potential.
Conclusion
AMD struggled in the first half of this year due to weakness in certain end markets, mainly the PC market. Nevertheless, most analysts are looking beyond the near-term headwinds and are bullish on long-term prospects, as the company is focused on building its AI offerings.
