Top analyst unveils new AMD stock forecast ahead of earnings

Since pretty much the dawn of time, humanity has always been looking for the next big thing.

Whether it’s entertainment, fashion, or technology, a significant portion of the population has one eye on the here and now and the other focused on the future.

Without visionaries, we wouldn’t have cars, airplanes, or the internet.

Of course, the prognosticators don’t always hit the bullseye. Remember the Segway or the hoverboard, two mechanized marvels that were supposed to change life as we know it?

It didn’t quite work out that way, but that didn’t slow down the hunt for the next innovation.

Nvidia and AMD will battle for AI chip market share in 2024.

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Artificial intelligence has been getting all kinds of buzz, especially after OpenAI released ChatGPT, a large language model millions now use to search, parse, and create content.

“The arrival of generative AI heralds disruption and opportunity across industries,” Deloitte said in a report released this month. “Organizations are exploring how generative AI can be used to unlock business value, supercharge efficiency and productivity, and open the door to entirely new products, services, and business models.”

AI has been a boon to tech companies serving the enterprise and hyperscaler networks that companies and governments use to train and run AI apps, including Advanced Micro Devices.

AMD shares soared on the potential to win a meaningful share of the AI chip market this year. The rally didn’t surprise Northland Capital’s Gus Richard. He recommended buying Advanced Micro Devices last July before its shares rallied 47%.

AI exuberance sparks new rating ahead of earnings

AI chips power everything from generative platforms such as ChatGPT to the more advanced supercomputers used by Google  (GOOGL) – Get Free Report and Tesla  (TSLA) – Get Free Report.

Advanced Micro Devices  (AMD) – Get Free Report is making its presence felt in the AI sector, and some believe the Santa Clara, Calif.-based company could challenge Nvidia  (NVDA) – Get Free Report for AI chip dominance this year.

Related: AI stock soars on new guidance (it’s not Nvidia!)

This year, AMD, founded in 1969 by Jerry Sanders and seven other tech professionals, is poised to deliver the MI300, next-generation chips that will challenge Nvidia for AI chip dominance.

And, in the more immediate future, AMD is scheduled to report fourth-quarter earnings on Jan. 30. 

Last year, the company posted earnings of 69 cents a share, while analysts called for 67 cents a share. Revenue totaled $5.6 billion, ahead of Wall Street’s forecast. 

Wall Street analysts have responded favorably to AMD in recent weeks. Cantor Fitzgerald recently initiated AMD with an overweight rating and a $190 price target. Earlier this month, analysts at TD Cowen raised their price target on AMD to $185 from $130 per share while maintaining an outperform rating on the stock.

Wall Street expects Q4 revenue and earnings per share to be $6.1 billion and 67 cents per share, respectively. If it delivers on those estimates, it will mark the fastest sales growth in one year.

Still, Northland Capital isn’t all that impressed with AI’s earning potential.

Richard downgraded AMD to market perform from outperform this week, saying in a research note that expectations for chip growth have spilled into “irrational exuberance,” according to CNBC.

“It’s really big, just not as big as investors are thinking,” Richard said of AI. “While chip prices are cyclically driven by supply and demand, they are flat over the long term. We also believe that AI demand in CY23 was overstated due to double ordering.”

Is artificial intelligence the ‘Technology du jour’?

Northland called for industrywide AI chip revenue of $125 billion in 2027. Richard expects AMD to nab a 13% market share. Including AI-chip sales, he predicts AMD’s total sales will be $45 billion that year.

The bad news? Richard said he believes AMD’s shares reflect much higher AI revenue in 2027 than their forecast. 

With AMD’s shares $6 above the firm’s previous price target and significantly above its upgrade from July 5 before Nvida’s blowout quarter, Investing.com reported, Northland decided to downgrade the stock.

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The analyst said that the growth in the AI chip market in 2023 was driven by factors such as the popularity of ChatGPT, price increases, double ordering, and stockpiling by Chinese companies.

Richard also said that market leader Nvidia was effectively a “sole source” for AI chips, and demand has been outstripping supply. Nvidia recently released a new H200 AI chip, and it said it plans to launch a new chip specially designed for sale in China soon.

As a result, Nvidia and AMD will likely invest heavily to outcompete each other. For now, the market seems big enough to support both players. However, as the Deloitte report points out, AI’s trajectory is uncertain in the long term.

The report asks, “Will generative AI (gen AI) be the greatest, most impactful technology innovation in history?” Will it completely transform how humans live and work? “Or will it turn out to be just another technology du jour that promised revolutionary change but ultimately delivered only incremental improvement? Right now, we can’t be certain.”

That uncertainty is too much for Northland to keep its rating at a buy.

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