AMD Earnings: AI GPU Revenue Is On the Rise

Key Morningstar Metrics for Advanced Micro Devices

• Fair Value Estimate: $145.00
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Advanced Micro Devices’ Earnings

Advanced Micro Devices AMD reported solid fourth-quarter results, but we consider the firm’s first-quarter forecast a mixed bag. We’ve raised our fair value estimate to $145 per share from $125, thanks to more optimistic assumptions for long-term data center revenue. But after a 78% increase in share price in the past three months (versus 16% for the Morningstar Global Markets Index), we still view shares as overvalued.

We’re encouraged that AMD lifted its data center graphics processor forecast to $3.5 billion from its prior guidance of “exceeding $2 billion.” We foresee the firm beating this new target, and we model $4 billion in DC GPU revenue in 2024. But we suspect this new estimate is still short of the expectations of at least some investors, perhaps leading to the 6% selloff in shares after hours. Further, AMD’s first-quarter forecast fell short of our prior estimates; management cited seasonal weakness in demand for PC processors, or CPUs, as well as sharp drops in gaming and embedded chip sales.

Revenue in the December quarter was $6.17 billion, up 6% sequentially, up 10% year over year, and above the midpoint of guidance of $6.10 billion. Data center revenue was the bright spot, up 43% sequentially and 38% year over year, with record revenue in server CPU and DC GPU. AMD’s PC processor segment (client) was up 1% sequentially but 62% year over year, as the PC market continues to rebound from the severe pause seen in prior quarters.

AMD expects March-quarter revenue to be $5.4 billion, which would represent 1% growth year over year but a 12.5% sequential decline. Data center revenue should be flattish because of a seasonal downturn in server CPUs, offsetting sequential growth in DC GPUs. Client revenue should face seasonal weakness as well but still be up significantly year over year.