By Adam Clark
Advanced Micro Devices got a show of support last week when Elon Musk said he would buy its chips to power artificial-intelligence efforts at Tesla. Wall Street is betting its earnings will provide further proof of AMD’s AI chip potential.
AMD stock was up 1.8% at $180.44 in premarket trading on Monday. That continued the movement seen after market hours last Friday when Musk said on social-media platform X that Tesla would buy the company’s chips, while also spending more than $500 million on Nvidia hardware this year.
Musk didn’t give a comparable figure for potential spending on AMD’s products but it still looked like good news for its MI300 data-center chips, the company’s main AI hardware offering. There could be more good news coming.
AMD will report its fourth-quarter earnings on Tuesday and most of the attention will be on its guidance. AMD CEO Lisa Su has previously said she expects the MI300 chip to generate around $2 billion in revenue in 2024. Susquehanna analyst Christopher Rolland thinks that could be raised to more than $3 billion at the least, with potential for around $6 billion.
“Our experts suggest AMD’s software capability has significantly improved their competitiveness vs. [ Nvidia software] CUDA, which has been a hindrance in the past,” Rolland wrote in a research note on Monday.
Rolland raised his target price on the stock to $210 from $170, keeping a Positive rating.
Rolland isn’t alone in his optimism. Stifel analysts led by Ruben Roy last week upgraded their target price on AMD to $200 from $170, while reiterating a Buy rating on the stock. They also focused on the potential for the MI300 chip.
“While our MI300 assumption remains near AMD’s guidance for 2024 at roughly $2 billion, we believe that improving supply, coupled with strong ongoing demand, could result in meaningful upside as 2024 progresses,” Stifel’s Roy wrote.
The analysts’ target prices imply a hefty trailing price-to-earnings multiple of at least 75 times for AMD, which is forecast to report full-year earnings of $2.66 a share for 2023, according to a FactSet consensus. However, that could compress quickly if it cements its position as the chief alternative AI chip supplier to Nvidia. AMD is expected to nearly double its annual earnings to $5.23 a share in 2025, according to FactSet.
If AMD does raise its chip guidance it will be striking a different note from its peer Intel, which tumbled last week after it gave a disappointing revenue outlook for the current quarter that suggested it had made few inroads into the AI data-center market.
Intel shares were up 0.4% in premarket trading on Monday, doing little to recoup their 12% loss last Friday. Nvidia shares were up 0.7%.
Write to Adam Clark at adam.clark@barrons.com