AMD's AI story has lost some shine. Can earnings brighten the picture?
By Emily Bary
AMD's stock is down about 25% from its peak
The past few months haven't been so easy on the Nvidia Corp. wannabes, and Advanced Micro Devices Inc. will look to reset that narrative when it reports earnings Tuesday afternoon.
Heading into AMD's (AMD) last earnings report, expectations were running high for just how much artificial-intelligence revenue the company would be able to rake in this year. But AMD's more measured forecast sent Wall Street's expectations back down to earth, and recent developments have backed up that cooler sentiment.
Three months ago, some investors thought the company might be able to drive perhaps $10 billion in full-year revenue for its MI300 AI accelerator line, but management ended up giving a target of more than $3.5 billion. Bernstein analyst Stacy Rasgon wrote last week that "until recently," expectations seemed to be creeping back up near $6 billion, but now investors are worried about possible customer order pushouts.
"So a reset may not necessarily be a bad thing," he wrote. "And one could theoretically argue that a pushout due to a supplier qualification issue would not be reflective of end demand, and hence would not be structural." The rumored pushouts are "supposedly" driven by high-bandwidth-memory supply issues, he said.
See also: AMD's stock has been 'in absolute freefall' - but its earnings could spark a chip-sector rebound
Much discussion late last year hinged on AMD's potential to play second fiddle to Nvidia in the market for AI hardware. On one hand, the market opportunity looks expansive, but Rasgon said that AMD has to work quickly to capitalize, as Nvidia isn't standing still.
"The MI300 is (barely) competitive with the H100, and NVDA is launching the H200 now, and Blackwell into the 2H," Rasgon wrote of three generations of Nvidia products. "MI300 pushouts will then consequently make an already-tough competitive situation even tougher."
The focus of AMD's Tuesday afternoon call will likely be what it has to say about the MI300 trajectory, and for that reason, Wedbush analyst Matt Bryson is a bit cautious.
"While we see expectations on this front as having moderated somewhat in recent weeks, we still believe, generally, investors are looking for revenues well above management's $3.5 billion outlook, or the $3.75 billion we have modeled," he wrote. "Given our current limited insightinto management's likely guide, we are uncertain as how the stock will react to earnings (though we continue to see AMD as best-positioned to carve out a second-source position vis a vis Nvidia)."
See also: The latest evidence Nvidia's stock is a 'no brainer,' according to this analyst
AMD shares have fallen about 25% from their closing high of $211.38 achieved in early March. Given the stock's selloff, Cantor Fitzgerald analyst C.J. Muse thinks investors would be satisfied with an "in-line to modest beat" for the latest quarter, as well as a full-year target of $4 billion in MI300 revenue.
The FactSet consensus calls for adjusted earnings per share of 62 cents for the March quarter on revenue of $5.48 billion. Analysts expect data-center revenue to climb 75% to $2.36 billion and project a 74% bump in client revenue, to $1.29 billion. Gaming revenue is expected to drop 45% to $964 million, while embedded revenue is expected to fall 40% to $941 million.
"We view the [second-half] recovery story as intact, with many levers for AMD in the back half of the year, including growing [data center] in both AI and non-AI servers (we believe that MI300 [high-bandwidth-memory] supply can likely support $5-6 billion in revs), a recovery in client as AI PCs proliferate, and an embedded business that will rise from the 1H24 trough after a long inventory digestion," Muse wrote.
-Emily Bary
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04-29-24 1644ET
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