Advanced Micro Devices (NASDAQ: AMD) investor day event did not spark a serious change in the analysts' outlook, but it did paint a rosy picture of the company’s future. The takeaway is that the accelerator market is still in the discovery phase, getting bigger with every estimate and Advanced Micro Devices is well-positioned within the industry.
Not only is its MI-300 series of accelerators getting good responses from end-users, but it's leaning into edge AI with the Ryzen line, which has it set up to dominate in that arena as well. The bottom line is that AMD stock is undervalued relative to its outlook and on track to hit new all-time highs sometime in 2024.
Advanced Micro Devices is a viable alternative to NVIDIA
NVIDIA (NASDAQ: NVDA) will likely retain the top spot among AI accelerator manufacturers for the foreseeable future, but that doesn’t matter for AMD investors. AMD’s MI-300 line of accelerators is getting a good response from the industry, highlighting the need for technology and room for competition within the industry.
End-users from Oracle (NASDAQ: ORCL) to Meta (NASDAQ: META), Microsoft (NASDAQ: MSFT) and OpenAI have stepped up to say they will use AMD’s accelerators and incorporate their use into their ecosystems. Not only do the chips offer an alternative to NVIDIA, but they are also better suited to some use cases. The bad news is that NVIDIA’s next-generation chips, such as the H200, will up the ante in terms of performance and bring increased competition; the good news is that AMD is also working on its next-generation technology, which will bring advances of its own.
AMD ups its addressable market forecast
AMD CEO Lisu Su set a high target when she revealed the company’s $150 billion addressable market forecast over the summer. That target implies a substantial amount of growth from today’s market, valued at less than $75 billion, and was increased at the investor day event. The company now expects the AI accelerator market to be $400 billion by 2027, which is nearly 300% growth compared to this year.
Advanced Micro Devices stock trades a lofty 40X next year’s earnings consensus, but the consensus for next year is overly cautious and does not factor in the new market outlook offered by the company. The analysts expect only a 16% YOY revenue growth in 2024 with minimal margin expansion despite healthy demand demonstrated by NVIDIA and the expected 70% CAGR for the AI accelerator market. In this light, shares of AMD trade at a deep value relative to the company’s growth potential, and they are likely to see price-multiple expansion over the next few quarters as results come in.
Analysts are in wait-and-see mode
The analysts weren’t too impressed with the investor day event because much of the news had already been released, including the $2 billion revenue target for the MI300 line. However, they have been bullish all year and see the stock trading 35% higher than last year at the consensus midpoint. The consensus hasn’t budged since late last quarter due to near-term headwinds, but those are expected to recede by mid-2024 as AI sales ramp.
With the analyst in wait-and-see mode, revisions will likely begin following the next earnings report. Assuming the company shares in NVIDIA’s strength, the revisions should be positive and robust. Until then, the most recent targets have the stock trading in the $140 to $200 range or about 0% to 40% upside. The $200 high price target was freshly set and reiterated after the investor day event; a move to near that level would be an all-time high for the market.
The technical outlook: AMD breaks out to multi-year high
The price action in AMD stock is favorable to new all-time highs. The market is in rally mode following the mid-year correction, breaking out to a multi-year high following investor day news. Bullish indicators accompany the move, so a continuation is likely. The next targets for resistance are near $140 and $160. The $140 target will likely fall easily; the $160 may be tougher to break without a new catalyst to drive the market. The next visible catalyst is the Q4 earnings release, due in late January. The analysts expect revenue to grow by 10% at the consensus estimate and are likely to get a positive surprise.
