Is AMD stock still a buy in February?

Is AMD stock still a buy in February?

With shares up 123% over the past 12 months Advanced micro devices (NASDAQ:AMD) He was the biggest beneficiary of artificial intelligence (AI) Trend. But unlike the competitor nvidia, Which has seen a rise in revenues and profits, AMD’s rise depends more on future expectations than current results. Let’s discuss the company’s recently reported fourth-quarter earnings and explore how its chip business could evolve over the coming years.

Fourth quarter earnings were less than stellar

AMD’s fourth-quarter earnings report was mixed. Total revenue increased 10% year-over-year to $6.17 billion on strength in the data center segment, which rose 38%. The company recently released the latest versions of AMD Instinct Graphics processing units (Graphics Processing Units) Designed for training and running AI applications. It is possible that these products contributed to the health expansion of that period.

However, AMD sells more than just data center chips. Other sectors such as gaming and embedded devices fell by 17% and 24% respectively, resulting in an overall lackluster performance. The company’s future directions also left a lot to be desired.

Management expects first-quarter sales to be $5.4 billion, a significant discount compared to analysts’ expectations of $5.73 billion. But more worryingly, the company expects data center revenues to be flat as declines in CPU sales offset growth in new AI-powered GPUs. For all of 2024, CEO Lisa Su expects data center GPUs to add $3.5 billion to AMD’s top line. But that won’t mean much if the company’s other segments continue to decline by a similar or greater amount.

AMD’s thesis is based on the next three years

Right now, AMD’s bullish thesis is based on Lisa Su’s prediction that the AI ​​chip market could rise to $400 billion by 2027. If AMD can capture just 5% of that opportunity, it could add $20 billion to its revenue in just three years. . – perhaps enough to overcome any potential weakness in her other work. The company has already received a large amount Cloud clients Likes Microsoft, inspirationAnd dead, Which will use its Instinct GPUs to help power internal and external workloads.

A man monitors the performance of his stocks on a computer

Image source: Getty Images.

To increase its market share, AMD must make its chips competitive Nvidia‘s Flagship H100. It can do this by focusing on performance and price.

The Financial Times estimates that each Nvidia H100 device costs $40,000. Nvidia’s gross profit margin rose from 54% to 74% in the third quarter, suggesting it is taking advantage of a lack of alternatives to raise prices. The market appears ready for more, less expensive options.

But talk (and estimates) are cheap. Over the coming years, AMD will have to take advantage of this opportunity to grow its AI chip business. So far, no tangible results have been shown to justify the rise in its stock.

At a perfect price

The AI ​​industry is expected to expand significantly over the next three years, and AMD is in a prime position to capitalize on this growth. But this does not mean that the stock lives up to its high price.

With the front Price to Earnings (P/E) Out of 44, AMD has a higher rating than Nvidia, which is trading for a forward P/E of 30. This means it has very little room for error, and the next three years will be a make-or-break period for the company. Shares remain a buy, but more cautious investors may want to wait for more data before taking a position.

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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool has a disclosure policy.

Is AMD stock still a buy in February? Originally published by The Motley Fool

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