AMD: Catalyst for Stock Gains or Just Another Milestone?

The analysts at Bank of America have reiterated their buy recommendation for AMD stock even before the company's highly anticipated "Advancing AI" event on October 10. This event promises to unveil groundbreaking updates to the AI roadmap and server CPUs, accompanied by insightful commentary from cloud customers. The analysts recall that a previous AI event by AMD in December resulted in significant stock gains of 19% and 80% within one month and three months, respectively. This performance surpassed the Philadelphia Semiconductor Index, which rose by 10% and 37% in the same periods. Although AMD has registered only a modest stock gain of 9% this year, lagging behind the SOX index's 22% rise, it is expected that the upcoming event could provide a new boost to the stock. The market for AI accelerators is highly competitive, but BofA sees potential for AMD to increase its market share. Market forecasts predict AI revenues for AMD to be $5.1 billion in 2024, with the possibility of growing to $10 billion by 2025. Revenues for 2024 to 2026 are expected to be $5.1 billion, $9.7 billion, and $12.8 billion, representing a projected market share of 5-7% in AI accelerators. Despite these opportunities, BofA warns of the challenge of further expanding market share, especially given the dominant position of NVIDIA Corporation with an 80-85% market share and competition from cost-efficient ASICs by companies like Broadcom and Marvell. However, if AMD manages to secure more than 10% of the AI market by 2026, it could mean an additional revenue boost of about $5 billion. Furthermore, faster growth rates could lead to a revaluation of AMD, with a price-earnings ratio of 30-55, similar to previous periods of rapid growth. The analysts expect AMD to highlight its improved overall positioning at the event, including recent acquisitions and open software initiatives. BofA also highlights broader challenges for AMD, such as competition from Intel, sluggish PC demand, and competition from ARM-based servers.