6. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Investors: 124
Earlier this month, Citi analysts said in a note that Advanced Micro Devices, Inc. (NASDAQ:AMD) is expected to take 10% of the data center GPU market. Citi analyst Christopher Danely said Advanced Micro Devices, Inc. (NASDAQ:AMD) is using its “annual product cadence” to keep up with Nvidia. Danley has a $176 price target on Advanced Micro Devices, Inc. (NASDAQ:AMD).
Advanced Micro Devices, Inc. (NASDAQ:AMD) is also a strong player in the data center space. Advanced Micro Devices, Inc. (NASDAQ:AMD) has teased 5th Generation Epyc Gen CPUs (codename Turin) and their Instinct MI-300 series GPU accelerators. Advanced Micro Devices, Inc.’s (NASDAQ:AMD) server chips are built on Zen5 core CPU architecture.
Advanced Micro Devices, Inc. (NASDAQ:AMD)’s latest results show a spectacular increase in data center revenue, but a lackluster increase in operating income (+26%) threw water on the enthusiasm around the stock. Advanced Micro Devices, Inc. (NASDAQ:AMD) bears also say the stock’s P/E ratio of over 240 is amongst the highest in the chips industry. Surprisingly, Advanced Micro Devices, Inc.’s (NASDAQ:AMD) forward P/E ratio is about two times higher than Nvidia’s.
Average analyst estimate for Advanced Micro Devices, Inc. (NASDAQ:AMD) is $187.2, which presents an upside potential of 17%. Wall Street analysts expect Advanced Micro Devices, Inc. (NASDAQ:AMD)to grow 32.50% this year and 59% next year. For the next five years the growth will then moderate to 32% on a per-annum basis, which is still high. Based on Advanced Micro Devices, Inc.’s (NASDAQ:AMD) 2025 EPS forecast, the stock is trading at around 28.6X forward P/E ratio, which isn’t high given Advanced Micro Devices, Inc.’s (NASDAQ:AMD) growth trajectory and catalysts.
Meridian Contrarian Fund stated the following regarding Advanced Micro Devices, Inc. (NASDAQ:AMD) in its fourth quarter 2023 investor letter:
“Advanced Micro Devices, Inc. (NASDAQ:AMD) is a global semiconductor chip maker specializing in central processing units (CPUs), which are considered the core component of most computing devices, and graphics processing units (GPUs), which accelerate operations running on CPUs. We invested in 2018 when it was a mid-cap value stock plagued by many years of underperformance due to lagging technology and lost market hi share versus competitors Intel and Nvidia. Our research identified that changes and investments made by current management under CEO Lisa Su had, over several years, finally resulted in compelling technology that positioned AMD as a stronger competitor to Nvidia and that its latest products were superior to Intel’s. We invested on the the belief that AMD’s valuation at that that time did not reflect the potential for its technology leadership to generate significant market share gains and improved profits. This thesis has been playing out for several years. During the quarter, AMD unveiled more details about its upcoming GPU products for the AI market. The stock reacted positively to expectations that AMD’s GPU servers will be a viable alternative to Nvidia. Although we pared back our exposure to AMD into strength as part of our risk-management practice, we maintained a position in the stock. We believe AMD will continue to gain share in large and growing markets and is reasonably valued relative to the potential for significantly higher earnings.”
