Advanced Micro Devices (AMD) has been on a remarkable run, with its stock surging 77% year to date and ranking among the top 10 in the S&P 500 for 2023 returns. While some might fear it’s too late to invest in this tech juggernaut, a closer look at its recent quarterly report reveals a hidden gem that could propel its stock even higher. AMD’s forthcoming AI chip, the MI300X, has the potential to revolutionize the market and drive significant revenue growth.
A Mixed Quarter with a Promising Development
In its second-quarter financial results for the period ending April 01, 2023, AMD reported total revenue of $5.4 billion, surpassing estimates of $5.3 billion. Adjusted earnings-per-share (EPS) also outperformed expectations, coming in at $0.58/share compared to an estimated $0.57/share. However, the Client segment, encompassing AMD’s PC business, experienced a concerning 54% decline in revenue. On the other hand, the Embedded segment saw a 16% year-over-year increase in revenue.
Despite the mixed results, AMD’s overall revenue surpassed expectations due to the Client segment’s decline not being as severe as anticipated.
The AI Revolution: A Game-Changer for AMD
Within AMD’s quarterly report, a significant piece of information emerged that has profound implications for the company’s future. Management revealed an overwhelming surge in artificial intelligence (AI) engagement, with customers expanding or initiating AI projects at a staggering rate of seven times that of the prior quarter.
This AI boom coincides perfectly with AMD’s upcoming launch of the MI300X chip, positioned to rival Nvidia’s H100. The MI300X GPU is specifically designed to power supercomputers for training Large Language Models (LLMs) used in applications like ChatGPT. Already a major player in this space, AMD aims to challenge Nvidia’s dominance in the high-performance computing (HPC) sector with the MI300X. In a market where top AI chips can fetch prices exceeding $40,000, the potential for revenue and margin growth is immense.
The MI300X also represents a strategic shift for AMD, redirecting focus from the lower-margin PC and gaming business towards the higher-margin data center and AI market. If AMD delivers on its promise to launch and sell the MI300X in the fall of 2023, it could herald a transformative phase for the company.
The Long-Term Investment Appeal
For long-term investors, AMD continues to offer an attractive opportunity. Trading at a price-to-sales ratio of 8.4, the stock remains near its three-year average of 8.3, making it a compelling choice. Comparatively, AI giant Nvidia trades at almost 45 times sales, highlighting AMD’s relatively more accessible valuation.
While AMD’s recent performance has been impressive, the true catalyst for its stock growth lies in its AI chip, the MI300X. The surging demand for AI, coupled with AMD’s strategic shift towards the higher-margin data center and AI market, presents an enticing opportunity for investors. If AMD can deliver on its promise to launch and sell the MI300X, the company’s revenue and margins could reach new heights. With the potential to disrupt the AI market, AMD’s stock outlook appears exceptionally promising for the long term.