AMD (NASDAQ:AMD)
AMD (NASDAQ:AMD) stock dropped more than 8% in premarket trade on Wednesday after analysts analyzed the semiconductor company’s forecast for the second quarter and concluded that it faces several challenges.
Analyst Vivek Arya from Bank of America downgraded AMD stock from buy to neutral and reduced the price objective for the stock from $98 to $95 per share while finding the company’s “consistent execution” and product cycles, especially in AI, to be appealing. Despite the “restrained” cloud computing spending environment, Intel (NASDAQ:INTC) is being “aggressive” on pricing and promotion, with an outlook for 50% half-over-half growth in the back-end of the year.
Finally, Arya noted that until revenue growth reaccelerates, there is “limited” headroom for multiple expansions because the company’s position in AI accelerators is still “modest,” especially when compared to Nvidia (NASDAQ:NVDA).
AMD forecasts second-quarter sales of $5.3 billion (with a $300 million margin of error) and adjusted gross margins of around 50%. Revenue of $5.51B and a gross margin of 50.4% were below market expectations.
And the company announced that until demand picks up, AMD will maintain its current level of operating expenses.
Dr. Lisa Su, CEO of AMD, noted on a conference call that the company was still experiencing difficulties in the data center market as bigger clients continued to work through inventory.
Su also said that AMD is looking at AI as a potential growth driver for the company. “We are in the very early stages of the AI era,” Su said. Increases in computing power are necessary for this. When it comes to this chance, AMD is in excellent shape.
UBS analyst Timothy Arcuri said the company’s first-quarter results were “in-line.” The revenue guidance was “about what most investors expected,” despite some bumps in the data center business due to the slow ramp of Genoa compared to previous Epyc generations and Intel’s better execution.
But AMD is gaining a share in the enterprise server market. According to Arcuri, the company’s server CPU share gain “has legs at least into 2025 and more likely even longer,” while the company’s other areas, especially AI, look promising in the future as well.
After hearing that Nvidia’s H100 chip lead times are now 18 months or more, Arcuri indicated that AMD’s MI300 should be “well positioned.” Arcuri predicted that by 2025 “we can easily see this being a new multi-$B revenue stream,” referring to the extent of the “generative” AI hardware possibility.
John Vinh, an analyst at KeyBanc Capital Markets, noted that the second-half outlook is encouraging, as it “implies Genoa issues have been resolved and MI300 is expected to contribute meaningfully.” Even though Vinh lowered his estimates on AMD stock after the company’s results and guidance, he did note that the second-half outlook is encouraging.
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