AMD Set to Announce Promising Q3 Earnings Amid AI Chip Boom

Advanced Micro Devices stock (NASDAQ: AMD) is expected to release its Q3 FY’24 results in late October, revealing how the company has benefited from increased demand for artificial intelligence chips. Revenue is projected at $6.73 billion, representing a 16% uptick compared to last year. Earnings per share (EPS) are forecasted at around 0.92, slightly above consensus expectations and reflecting a 30% year-over-year increase. For a deeper dive, check our analysis of Advanced Micro Devices Earnings Preview prior to the earning reports.

Volatile Journey: AMD Stock Over the Years

Over the past four years, the journey of AMD’s stock has been anything but stable. Returns have fluctuated significantly compared to the S&P 500. In 2021, AMD soared by 57%, but then dropped by 55% in 2022, only to rebound with a stunning 128% return in 2023. This volatility stands in contrast to the Trefis High Quality (HQ) Portfolio, which has provided steadier returns. The HQ Portfolio has consistently outperformed the S&P 500 annually, showcasing the benefits of less risky investments.

AMD’s Growth in a Mixed PC Market

In Q2 2024, AMD reported $1.5 billion in sales for its client segment, a significant 49% increase year-over-year, largely driven by sales of Ryzen 8000 Series processors. While the PC market has faced challenges—worldwide shipments fell 1.3% year-over-year to 62.9 million units, according to Gartner—AMD’s performance remains strong due to market share gains and necessary inventory replenishment after 2023’s drawdowns. The company’s server products, especially the AMD EPYC CPUs, are positioned to continue gaining ground against Intel, which has encountered delays in its technology advancements.

Surging Demand for AI Chips

AMD’s sales in the GPU sector are poised for substantial growth, primarily fueled by the demand for AI-related workloads. Graphics processing units, essential for running AI applications, have seen a spike in usage. Recent launches, such as the MI300X chip designed for generative AI workloads, indicate AMD’s expansion into this lucrative market. The company anticipates data center GPU revenue to surpass $4.5 billion in 2024, an increase from the previously expected $4 billion. In fact, sales from the Data Center segment, which includes AI chips, soared by 115% year-over-year to $2.8 billion, highlighting a significant rise in AI-related GPU shipments.

Future Projections and Valuation Insights

With the escalating need for AI solutions and alternatives to market leader Nvidia, AMD’s chip sales could exceed earlier expectations. A solid revenue base coupled with favorable product strategies should enhance AMD’s profitability. The adjusted gross margins improved by 300 basis points to 53% last quarter, with a forecast of approximately 53.5% for Q3. While Nvidia remains a dominant player, AMD presents potentially appealing investment opportunities in the AI space.

Stock Valuation and Market Impact

Currently, AMD trades at about 46 times anticipated 2024 earnings. Despite this high valuation, the growth in the PC market and surging AI application demands support this multiple. Additionally, a recent interest rate cut by the U.S. Federal Reserve could reduce financing costs for large data center builders, spurring capital investments and benefiting AMD’s CPU and GPU divisions. Our stock valuation places AMD at approximately $168 per share, around 8% higher than its current market price. We will reassess this price estimate after the Q3 results. For further insight, view our analysis on AMD Valuation: Is AMD Stock Expensive Or Cheap? and our detailed breakdown of AMD Revenue.

[1] Returns as of 10/17/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.