Advanced Micro Devices (NASDAQ: AMD) is making strides in the AI sector, positioning itself for potential future gains, albeit with some challenges in its ecosystem compared to NVIDIA’s (NASDAQ: NVDA) development. Recent improvements, along with strategic acquisitions, are helping AMD close this gap.
After releasing Q3 earnings, Advanced Micro Devices’ share price fell significantly, as results did not meet lofty market expectations. Nevertheless, the company reported $6.82 billion in revenue, representing a 17.2% increase from last year. This growth marks an acceleration from the previous quarter’s 9% and exceeded analyst predictions by a notable margin of 160 basis points. Notably, revenue from the Data Center division surged by 122%, continuing the impressive performance established in Q2, largely driven by strong sales of Instinct GPUs and EPYC CPUs. Sequentially, Data Center revenue increased by 25%, reflecting robust momentum.
Sales in the client segment also showed positive trends, rising 29% year over year and 26% sequentially. This increase is attributed to high demand for the new Zen 5 Ryzen processors used in laptops, a trend likely to persist as companies invest in AI-optimized devices to enhance productivity and profitability.
Despite some challenges in the gaming and embedded sectors, there are glimmers of hope. While gaming sales fell significantly due to market normalization and economic pressures, the embedded segment is poised for a rebound. Although down 25% year over year, its sequential decline of only 8% contrasts with the 29% drop in gaming, hinting at improving demand in some markets. Forecasts for 2025 predict growth in this sector, driven by advancements in the IoT industry, which is bolstered by both AI and 5G technology, crucial for enhancing IoT performance.
On the margin front, results were mixed. Adjusted gross and operating margins improved by 300 basis points year over year, though this was below market expectations. However, the expansion in margins signals better profitability and suggests that these gains are likely to continue. The adjusted earnings per share (EPS) of $0.92 met analyst estimates and marked a 33% increase from last year, indicating solid cash flow and balance sheet health despite increased investments and acquisitions.
Analysts Set 2024 Price Targets, Highlight AMD’s Long-Term Potential
Analysts have expressed mixed feelings regarding AMD’s recent performance. Many revisions tracked by Marketbeat indicate lowered price targets, which may limit short-term gains. The consensus target now stands at approximately $178, reflecting a decrease of around $10 overnight. However, this still suggests an 18% upside from key support levels, with a prevalent rating of Moderate Buy/Buy among analysts, as 90% recommend buying or better. Market sentiment emphasizes that while AMD is on the right path with its AI ventures, lingering challenges from legacy markets remain. Although progress is incremental, the company’s roadmap for AI appears robust, with traction expected to improve by 2025 as the ecosystem develops further.
Following the Q3 earnings report, AMD’s share price dropped nearly 10% but may be nearing a stable point. This decline aligned with critical support levels that coincide with the lower end of analysts’ target ranges, suggesting that a rebound is likely when it approaches the critical support around the $150 mark.
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