Advanced Micro Devices (AMD) received a significant show of support last week when Elon Musk, CEO of Tesla, announced that the company would purchase AMD chips to power their artificial intelligence (AI) efforts. This endorsement from Musk has caught the attention of Wall Street, with investors eagerly awaiting AMD’s upcoming earnings report for further proof of the company’s AI chip potential.
In premarket trading on Monday, AMD stock experienced a 1.8% increase, reaching $180.44. This positive momentum was sustained from after-market hours on Friday when Musk disclosed on the social media platform X that Tesla would acquire AMD chips, in addition to investing over $500 million in Nvidia hardware this year.
While Musk did not provide a specific figure regarding the potential spending on AMD products, the news is particularly promising for the company’s MI300 data-center chips, which serve as AMD’s primary offering in the AI hardware market. Furthermore, there might be even more positive news on the horizon.
On Tuesday, AMD will release its fourth-quarter earnings report, with much of the focus centered on the company’s guidance. Lisa Su, CEO of AMD, previously predicted that the MI300 chip would generate approximately $2 billion in revenue by 2024. However, according to Susquehanna analyst Christopher Rolland, this estimate could be revised to over $3 billion, and there is the potential for it to even reach $6 billion.
With the backing of Elon Musk and the anticipation surrounding its upcoming earnings report, AMD’s AI chip potential appears strong. Investors are closely watching to see if the company’s projections align with their expectations, as AMD continues to solidify its position in the AI hardware market.
AMD’s Optimistic Outlook for 2024
Rolland isn’t alone in his optimism regarding Advanced Micro Devices (AMD). Stifel analysts, led by Ruben Roy, recently upgraded their target price for the company to $200 from $170, while maintaining a Buy rating on the stock. The analysts also highlighted the potential of AMD’s MI300 chip.
While Stifel analysts estimate the MI300 chip’s revenue to be around $2 billion by 2024, they believe that improving supply and strong ongoing demand could result in significant upside as the year progresses.
According to FactSet consensus, AMD’s target prices imply a high trailing price-to-earnings multiple of at least 75 times. The company is expected to report full-year earnings of $2.66 per share for 2023. However, this multiple could reduce quickly if AMD solidifies its position as Nvidia’s primary alternative AI chip supplier. FactSet projects that AMD will nearly double its annual earnings to $5.23 per share in 2025.
It’s worth noting that AMD’s positive chip guidance diverges from Intel’s recent disappointing revenue outlook. Intel’s lackluster performance in the AI data-center market caused its stock to plummet last week.
While Intel shares only made a marginal recovery of 0.4% in premarket trading on Monday, Nvidia shares experienced a modest increase of 0.7%.
