AMD on the path to success thanks to AI boom

The rise of artificial intelligence has proven to be a transformative factor for the semiconductor manufacturer Advanced Micro Devices (AMD). In the past twelve months, AMD's stock experienced a rapid increase from a 52-week low of $93.12 in 2023 to a peak of $227.30 in March. Since then, the stock price has declined following the general trend of a weaker stock market. However, in the second quarter of 2023, AMD demonstrated impressive results, primarily due to strong sales in the AI semiconductor chip sector. Revenue increased by 9 percent year-over-year to $5.8 billion. Particularly noteworthy was the growth in the cloud computing segment, which climbed by 115 percent to $2.8 billion and now constitutes almost half of the total quarterly revenue. A crucial driver of this growth is the increased use of AMD products by major cloud computing providers. AMD CEO Lisa Su emphasized that the number of AMD-powered cloud instances at top providers increased by 34 percent. These customers include, among others, Netflix and Uber. In addition to the cloud computing segment, the PC division also benefited from the heightened demand for AI products, with a revenue increase of 49 percent to $1.5 billion in the second quarter. In July, AMD acquired Silo AI to facilitate the integration of AMD hardware into customers' AI systems. Despite the success in the AI sector, AMD recorded declines in other business areas. Revenue in the gaming segment fell by 59 percent to $648 million, and the embedded business saw a decline of 41 percent to $861 million. These fluctuations are typical of the cyclical nature of the semiconductor industry. Nonetheless, AMD was able to increase its gross margin from 46 percent in the previous year to 49 percent in the second quarter, and management expects further growth to 54 percent in the third quarter. Net profit rose by an impressive 881 percent to $265 million, leading to diluted earnings per share of $0.16 – an increase of 700 percent compared to the previous year. With solid financial results and an ambitious AI strategy, Wall Street views AMD positively: The consensus estimate from analysts recommends buying the stock, with a median price target of $195. The company thus appears well-positioned to continue growing and creating long-term value for shareholders.