Buyers have piled into Superior Micro Gadgets (AMD -2.17%) inventory in 2023, driving the shares up 89% yr to this point. After a brief pullback over the summer time, the inventory surged increased following the discharge of the corporate’s third-quarter monetary outcomes.
There are good causes to be bullish on AMD’s development prospects. It’s having fun with strong momentum in gross sales of central processing items (CPUs). Nonetheless, combined outcomes throughout AMD’s enterprise have brought on analysts to begin decreasing development estimates within the close to time period.
Listed here are one inexperienced flag and one purple flag for the inventory as we sit up for 2024.
Inexperienced flag: AMD is profitable the CPU battle
AMD primarily competes with Intel in CPUs and Nvidia in graphics processing items (GPUs). Buyers have low expectations concerning its means to beat Nvidia within the GPU market, in order that’s why AMD’s momentum in CPUs is a optimistic for the inventory.
Within the third-quarter replace, AMD revealed energy throughout the board in CPUs for enterprise servers and client PCs. Information middle income grew 21% over the second quarter, reflecting sturdy demand for the fourth-generation EPYC “Genoa” chips for servers.
Whereas AMD famous that enterprise demand stays mushy general, CEO Lisa Su cited Genoa’s efficiency and serving to firms get monetary savings on price of possession as components driving double-digit development in enterprise income final quarter.
On the patron aspect, AMD’s Ryzen CPUs have change into the chip of selection for PC avid gamers. Shopper phase income jumped 46% over the earlier quarter because of sturdy demand for the Ryzen 7000 sequence chips.
AMD is receiving nice suggestions from potential prospects for its next-generation Turing processors and MI300 accelerators for enterprise servers, which may drive extra development in 2024.
Pink flag: There are holes in AMD’s efficiency
AMD is just not firing on all cylinders. Within the third quarter, whole income elevated by simply 4% yr over yr and eight% over the earlier quarter. AMD’s diversification throughout a number of chip merchandise could also be its largest weak spot proper now because it struggles to catch Nvidia within the GPU market.
AMD’s information middle phase reported flat development yr over yr within the third quarter. The sturdy development of EPYC CPUs was offset by a decline in adaptive System-on-Chip (SoC) merchandise.
AMD can also be nonetheless experiencing weak spot in gaming. Robust gross sales of Radeon gaming GPUs have been offset by weak spot in gross sales of processors for online game consoles.
For the fourth quarter, administration forecasts whole income might be up roughly 9% yr over yr and 5% over the third quarter. The corporate might want to present accelerating development subsequent yr to justify the inventory’s comparatively increased valuation in comparison with Nvidia.
Information by YCharts
Analysts have been decreasing their development forecasts for AMD, whereas mountaineering estimates for Nvidia. This is not shocking contemplating Nvidia continues to blow away Wall Road’s expectations, whereas AMD continues to be scuffling with a mushy market throughout its product portfolio.
AMD could get the ball rolling subsequent yr with its new MI300 GPU accelerators designed for AI workloads. However buyers are nonetheless being requested to pay a premium for an organization that’s far behind the chief in GPUs. The most secure path for buyers is to attend for AMD to report higher development after it launches its new AI chips earlier than shopping for the inventory. There may be the chance that the MI300 chips do not transfer the needle as anticipated, which can restrict the inventory’s efficiency subsequent yr.
John Ballard has positions in Superior Micro Gadgets and Nvidia. The Motley Idiot has positions in and recommends Superior Micro Gadgets and Nvidia. The Motley Idiot recommends Intel and recommends the next choices: lengthy January 2023 $57.50 calls on Intel and lengthy January 2025 $45 calls on Intel. The Motley Idiot has a disclosure coverage.
