AMD's stock can surge 40%, this new bull says - even as Nvidia still dominates

By Emily Bary

HSBC turns bullish on AMD shares, saying there won't just be one winner in the market for AI GPUs

It's Nvidia Corp.'s world, but Advanced Micro Devices Inc. can still thrive.

At least, that's the perspective of HSBC analyst Frank Lee, who upgraded AMD shares (AMD) to buy from hold in a Tuesday report. He boosted his price target to $225 from $180, with the new target implying about 40% upside from current levels.

While AMD shares are up about 9% so far in 2024, they haven't seen the same magnitude of gains as other stocks levered to artificial-intelligence hardware. Nvidia shares (NVDA), for instance, are up 74%, while Broadcom Inc. shares (AVGO) have risen 17% and Micron Technology Inc. shares (MU) are ahead 42%.

See also: Why Nvidia's stock looks especially juicy in the near term, according to Citi

AMD disappointed Wall Street last quarter with its projection for more than $3.5 billion in 2024 revenue from AI graphics-processing units, as expectations had become elevated in the $6 billion range.

And part of the stock's recent weakness - down 16% in the past month - has to do with a more recent assessment of the landscape for graphics-processing units that serve AI-use cases, in the wake of Nvidia's announcement of its new Blackwell chip lineup. Nvidia's management suggested plans to price the hardware in a way that makes it relatively accessible and helps grow adoption, which was seen as a potentially negative sign for AMD, which has its own AI hardware but trails the market leader.

Read: Nvidia's stock has had a killer run. Why it's still Morgan Stanley's top AI-chip pick.

In Lee's view "it is unlikely for Nvidia to have 100% of the market share in AI GPUs," and his base case assumes AMD will have 10% of the market in 2025. That would translate to $12.3 billion in AI GPU revenue potentially, he noted, while the consensus view is around $9 billion.

In a bull-case scenario, AMD could capture 15% of the market in 2025, which would imply revenue potential of $18.5 billion for that part of the business.

Lee noted that AMD's MI300 product looks to be more of a competitor to older Nvidia hardware rather than the new Blackwell lineup.

"Despite market concerns of Nvidia's dominance via its GB200 platform in [2025], we believe the MI300 is not direct competition to the GB200," he wrote, referring to Nvidia's Grace Blackwell processor. "We expect the introduction of the higher ASP MI350/M375/MI40 to be a real direct competitive product to Nvidia's GB200."

Lee added that he was "previously apprehensive about two big players operating in the AI accelerator market and believed that Nvidia's first-mover advantage would mean that only it could capitalize on the AI super trend."

Now, though, he's doubtful the market will prove a monopoly and sees it as "big enough for AMD to carve out a meaningful share for itself." After all, the company already had MI300X orders from Microsoft Corp. (MSFT), Meta Platforms Inc. (META) and other big names.

Don't miss: Nvidia and these other chip stocks named top plays into earnings season

-Emily Bary

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04-16-24 0902ET

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