AMD Faces Challenges Amid Complicated Market Conditions
Advanced Micro Devices AMD shares experienced a significant decline of 17.1% over the past month, lagging behind the Zacks Computer & Technology sector, which showed a modest return of 0.9%.
In comparison to its competitors, AMD has also underperformed. Shares of NVIDIA NVDA increased by 9.5%, while Intel saw a 4.2% gain during the same period.
The concerns around AMD primarily stem from a sluggish outlook for the fourth quarter of 2024.
Check the latest EPS estimates and surprises on Zacks Earnings Calendar.
For the fourth quarter of 2024, AMD anticipates revenues of approximately $7.5 billion, with a margin of +/-$300 million. This mid-point indicates a projected year-over-year growth of about 22% and a sequential growth of around 10%.
The company expects strong growth in the Data Center, Client, and Gaming segments on a sequential basis. However, year-over-year revenues from the Embedded and Gaming segments are expected to see declines.
Monthly Performance Overview
Image Source: Zacks Investment Research
Downward Trend in AMD’s Earnings Estimates
Currently, the Zacks Consensus Estimate for AMD’s fourth-quarter 2024 earnings stands at $1.06 per share, reflecting a decrease of 2.8% over the past month, yet suggesting a year-over-year growth of 37.66%.
The consensus for fourth-quarter 2024 revenues is $7.51 billion, pointing to a 21.82% increase year-over-year.
AMD Price and Consensus Analysis
Advanced Micro Devices, Inc. price-consensus-chart | Advanced Micro Devices, Inc. Quote
The Zacks Consensus Estimate for AMD’s earnings in 2024 is currently at $3.30 per share, showing a slight decline of 1.8% over the past month, but still projecting a growth of 24.53% from the 2023 figure.
For 2024, the revenue consensus rests at $25.66 billion, suggesting a growth of 13.16% from 2023.
Favorable Semiconductor Demand Benefits AMD
AMD has seen advantages from high demand for its data center chips, which are essential for hyperscalers and support AI and Generative AI applications. This surge contributed to a significant rise in global semiconductor sales during the third quarter of 2024. The Semiconductor Industry Association revealed a 23.2% year-over-year increase in global semiconductor sales, reaching $166 billion.
At the end of the third quarter of 2024, AMD’s public cloud instances grew 20% year-over-year, surpassing 950, with major deployments by companies like Microsoft MSFT, AWS, Uber, and Netflix.
Meta Platforms META has reportedly utilized over 1.5 million EPYC CPUs globally for its social media services. Adoption of EPYC instances among enterprise customers is also on the rise, with new business from Adobe, Boeing, and Tata among others.
The World Semiconductor Trade Statistics (WSTS) predicts global semiconductor sales will reach $611.2 billion, an expected rise of 16% from 2023, up from earlier predictions of a 13.1% increase. This is a promising sign for AMD.
IDC has even more optimistic projections for 2024, predicting over 20% annual growth primarily driven by demand for AI chips and a recovery in smartphone sales. WSTS anticipates that by 2025, global semiconductor sales will see a 12.5% growth, reaching $687.4 billion.
Robust Partnerships and Strategic Acquisitions Support AMD
AMD’s pipeline remains strong with partnerships involving Microsoft, Oracle, DELL, HPE, Lenovo, and Supermicro, all producing instinct platforms.
AMD has actively pursued acquisitions to keep pace with NVIDIA in the highly competitive AI landscape. The company recently finalized its acquisition of Silo AI and has announced plans to acquire ZT Systems for about $4.9 billion in cash and stock, enhancing its focus on AI in the data center sector.
These initiatives aim to broaden AMD’s competitive position against NVDA, not only in the data center market but also in the expanding consumer PC arena equipped with AI capabilities.
During the third quarter of 2024, AMD increased its presence in the energy, technology, and automotive sectors, partnering with companies like Airbus, FedEx, HSBC, and Walgreens.
New products, such as the Instinct MI325X accelerator, are enhancing AMD’s standing in data centers. The company has also launched the Ryzen AI 300 Series, its third generation of AI-enabled mobile processors, as well as the Ryzen 9000 Series for desktop and laptop computers.
Investors may find AMD’s growth potential appealing, thanks to the recent acquisitions of Silo AI and ZT Systems, which could enhance its revenue growth. Those already holding shares might expect long-term rewards from the company’s performance.
In contrast, AMD faces some near-term challenges, especially with weaknesses in the Embedded segment and fierce competition from NVIDIA. Its current Growth Score of D makes it less attractive to growth-focused investors.
Moreover, with a forward 12-month Price/Sales ratio of 7.34X, AMD appears overvalued compared to the Zacks Computer and Technology sector’s average of 6.01X.
Forward Price/Sales Ratio
Image Source: Zacks Investment Research
Currently, AMD holds a Zacks Rank of #3 (Hold), suggesting investors may want to wait for a more opportune moment to buy shares. You can find the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks Identifies Top Semiconductor Stock
While NVIDIA has surged more than +800% since its recommendation, it is significantly larger than our newly identified top chip stock, which still has plenty of room for growth.
With strong earnings and an expanding customer base, this stock is well positioned to meet the growing demands in Artificial Intelligence, Machine Learning, and the Internet of Things. The global semiconductor market is expected to grow from $452 billion in 2021 to $803 billion by 2028.
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
