Advanced Micro Devices, Inc. (NASDAQ: AMD) shares received a bullish recommendation from an analyst at Roth MKM, with the optimism premised on the company's differentiated portfolio.
The AMD Analyst: Suji DeSilva initiated coverage of AMD stock with a Buy rating and a $125 price target, which suggests a roughly 9% upside from current levels.
The AMD Thesis: AMD's differentiated portfolio of high-performance compute/networking processors, and accelerators represents a strong investment opportunity, said DeSilva in a note.
The analyst said that the Santa Clara, California-based company has gained a share in the data center infrastructure market. He added that the company's x86-based server processor market share increased from about 10% in 2020 to 25% by the middle of the calendar year 2023.
AMD beat rival Intel Corp. (NASDAQ: INTC) by reporting a 21% sequential increase in data center revenue compared to the latter's 3% growth in its DCAI revenue, DeSilva noted. He said this was achieved due to 50% sequential growth in the new EPYC Gen 4 server processor sales.
DeSilva said that AMD has strong leverage to AI infrastructure growth, with its new MI300X AI accelerator likely gaining traction in the fast-growing market opportunity. AMD can better compete with Nvidia Corp. (NASDAQ: NVDA), the frontrunner in the AI race, due to the emergence of open-source AI development tools as an alternative to Nvidia's proprietary CUDA framework, he said.
The analyst expects AMD's AI Instinct product sales to more than double quarter-over-quarter to $400 million in the fourth quarter, with revenue accelerating further to $2 billion in 2024.
AMD's data center revenue will likely grow 36% year-over-year in the fourth quarter and 61% in 2024, the analyst said, citing his checks.
DeSilva said that the chipmaker will also benefit from the cyclical opportunity in Gaming and Client PC recovery. " While overall consumer demand has remained muted, we nonetheless expect these segments to exhibit a recovery progression over the next several quarters," he added.
For the fourth quarter, the analyst forecast revenue and earnings per share of $6.1 billion and $0.77, respectively, roughly in line with the consensus.
On valuation, DeSilva said the $125 price target is arrived based on 33 times multiple of the calendar year 2024 earnings per share estimate. He said this is at a premium versus the 26 multiple for the overall technology sector, adding that the valuation is justified, given AMD's relative growth opportunity.
AMD Price Action: In pre-market trading on Tuesday, AMD stock rose 0.33% to $117.17, according to Benzinga Pro data. So far this year, the stock has gained 80.31% compared to the iShares Semiconductor ETF's (NASDAQ: SOXX) 41.85% advance.