Morningstar

AMD Earnings: Strong CPU Share Gains and AI Prospects

We’ve raised our fair value estimate for AMD stock.

In this photo illustration, the AMD company logo is seen displayed on a screen.
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Advanced Micro Devices Inc
(AMD)

Key Morningstar Metrics for Advanced Micro Devices

What We Thought of Advanced Micro Devices’ Earnings

Advanced Micro Devices AMD reported second-quarter revenue of $7.7 billion, up 3% sequentially, up 32% year over year, and at the high end of guidance. AMD forecasts third-quarter revenue of $8.7 billion, which would represent growth of 13% sequentially, 28% year over year, and ahead of FactSet Consensus estimates.

Why it matters: AMD continues to prosper from Intel’s struggles as it gains market share in both PC and server processors. Meanwhile, all eyes remain on AMD’s budding artificial intelligence business, and we think the results were admirable given the ban on MI308 processor sales into China.

  • Data center revenue still increased by 14% year over year despite the firm’s inability to sell MI308 products into China. Within the data center business, we estimate that server CPU revenue was $2.3 billion and grew about 25% year over year, while DC GPU revenue (ex-China) was close to $1 billion.
  • We think AMD is gaining traction in AI GPUs to carve out a piece of the pie against its rival, Nvidia. We’re impressed with CEO Lisa Su’s comment that she sees a line of sight for “tens of billions” of AI revenue in the not-too-distant future.

The bottom line: We raise our fair value estimate for narrow-moat AMD to $155 per share from $140 as we lift our AI GPU estimates amid these bullish comments. Given the size of the AI market of $500 billion-plus, we think AMD’s aspirations are reasonable.

  • Shares sold off about 4% after hours, as we suspect investors were seeking even more upside after the stock made a terrific run in recent months. We still view shares as modestly overvalued, as optimism around AMD’s AI GPUs might still be a bit ahead of itself.

Coming up: The incremental $1 billion of revenue in the September quarter will mostly come from AI GPUs as its next-generation MI355 products ramp up. We model $1.8 billion and $2.6 billion in AI GPU revenue in the third and fourth quarters, respectively.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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