Shares of AMD (NASDAQ: AMD) were in rally mode ahead of the Q2 release, and now they look ready to rocket higher. The results were not the blowout they could have been but highlight the difference between AI market leader NVIDIA (NASDAQ: NVDA) and its closest competitors.
In the case of NVIDIA, it will be at the cutting edge of the development of AI, where AMD is ready to benefit from the long-term application of the technology. Its focus on the PC market means it will be the go-to source for AI-powered technology as it is embedded into the tech we use daily.
That multi-billion dollar opportunity will play out over the next decade and drive substantial returns for investors.
Advanced Micro Devices Rises On AI Demand
Advanced Micro Devices had a solid quarter, with top and bottom-line results outpacing the consensus. The $5.36 billion in net revenue is down 18% YOY due to the downturn in the chip market, but demand for EPYC and RYZEN 7000 chipsets led to 75 basis points of outperformance and strength on the bottom line.
Company CEO Lisa Su says interest is high for the MI250 and new MI300 chipsets, which are expected to ramp production by Q4. Interest in these chips is up 7X compared to last year, driven by interest from multiple clients who operate at scale.
Margin news is mixed but favorable to the long-term rise in share prices. The GAAP gross margin was relatively flat YOY, adjusted fell slightly, but both came in better than expected.
The Adjusted $0.58 in earnings is down compared to last year but a penny or 170 bps better than expected. However, the guidance above consensus was the news that moved the market.
The company expects to see Q3 revenue accelerate 650 basis points sequentially to a range of $5.4 to $6 billion. That brackets the consensus estimate with the consensus below the mid-point, and it may be cautious given the ramp in AI demand and the outlook for MI300 production.
AMD is also considering a special AI chip for the Chinese market to meet the newest import/export controls. As for earnings, the company expects to see the gross margin improve by roughly 500 basis points to 51%, which is well above expectations.
The Analyst's Response Is Mixed
The analysts are bullish on Advanced Micro Devices, but the post-release activity is mixed. The activity is mixed because the news was not enough to spark revisions within the 1st 12 hours of the release suggesting a reset is underway.
Until the new revisions come out, the Marketbeat.com consensus is pegged at Moderate Buy with a price target that assumes about 11% of upside. Several of the most recent revisions to the price target are downward.
Still, the revision trend is upward, with the consensus target up strongly compared to last month and last quarter and up slightly compared to last year. The assumption is that analysts will continue this trend and drive the market higher.
Institutional activity is more bullish. The institutions bought heavily in the 1st part of Q3 and have total ownership up to 69%. Activity in Q3 is tilted firmly in favor of the bulls, with a ratio of 57:1 in favor of buying. This activity is consistent with the stock’s break to new highs and test of support in late June and early July.
Assuming this activity continues, the stock has nowhere to go but up.
The chart is promising. The market is trending higher and recently broke above critical resistance. The market pulled back to retest support at the break-out level, and it was confirmed.
The market is moving higher in alignment with the underlying trend and is set to advance. The next critical resistance is near $130, a move above that will open the door to a run toward the all-time high.