AMD shares are down 15% from their 52-week high, here’s why you should buy it

Advanced Micro Devices (NASDAQ:AMD) Shares hit a new 52-week high on March 8, but the chipmaker’s shares have since retreated more than 15%, although there have been no significant company-specific developments during that period.

Of course, there are reports that China plans to replace AMD and Intel Pressure from Chinese government servers and personal computers (PCs) did put some temporary pressure on the stock price, but even this shouldn’t be a big problem for AMD in the long run. Here’s why.

China’s sanctions shouldn’t cause too much trouble for AMD

AMD reportedly generates 15% of its total revenue from selling chips to China. Therefore, any sanctions on its chip sales in China could have an impact on AMD’s financial position. but, semiconductor market That way, even if AMD can’t sell its chips in China, it will have other ways to sell them.

For example, due to the use of AI (ARTIFICIAL INTELLIGENCE). PC sales fell only 2.7% year-on-year in the fourth quarter of 2023, and fell 14% for the full year. The market will turn around in 2024, driven by a new update cycle. enterprise and education markets, and the arrival of AI-enabled PCs.

Market research company Canalys predicts that AI PC shipments will reach 48 million units this year, accounting for 18% of the overall market; and, by 2028, AI PC shipments may grow at an annual rate of 44%, accounting for 18% of the entire market. 70%. Canalys also pointed out that compared with traditional machines, the premium for artificial intelligence PCs may be 10% to 15%.

Therefore, AMD has the opportunity to increase central processing unit (CPU) sales and average selling price (ASP). Notably, AMD has been taking PC market share from Intel, with the company controlling 20.2%. According to Mercury Research, its share of the client CPU market in the fourth quarter of 2023 will rise from 17.1% in the same period last year.

Mercury Research attributes the share growth to AMD’s early entry into the AI ​​PC market with its Ryzen 7040 processor. Meanwhile, AMD claims that its CPUs are powering more than 90% of AI PCs currently on the market. Therefore, stronger demand for AI PCs will give AMD a boost in client processor business.

A similar situation is likely to occur in the server CPU and GPU (graphics processing unit) markets. AMD ended 2023 with control of 23% of the server CPU market, up from 17.6% a year earlier. AMD CEO Lisa Su said in the latest earnings call that the company has witnessed “strong demand for EPYC server CPUs from cloud, enterprise and artificial intelligence customers.”

AMD also added that “more and more customers are adopting EPYC CPUs to handle inference workloads.” The good thing is that AMD’s server CPU momentum will continue, because by 2029, AI server The annual growth rate of the equipment market will reach 26%. On the other hand, AMD’s AI GPU demand is also stronger than expected.

AMD raised its full-year data center GPU revenue forecast to $3.5 billion from the previous forecast of $2 billion. However, management made it clear during the earnings call that AMD will likely exceed that number due to improvements in its supply chain. It meets additional needs. All of this suggests that AMD can do well enough to beat analysts’ expectations in the coming quarters.

AMD may surprise investors with stronger-than-expected growth

When AMD releases its fourth-quarter 2023 results on January 30, 2024, the company expects revenue of $5.4 billion in the first quarter of 2024, almost the same as revenue of $5.35 billion in the same period last year. AMD’s non-GAAP (Generally Accepted Accounting Principles) gross margin guidance for the current quarter is 52%, a slight improvement from 50% in the same period last year.

As a result, AMD’s first-quarter revenue and profits are likely to grow slightly. However, analysts expect AMD’s quarterly revenue to reach $5 billion, lower than the company’s expectations. In addition, market consensus predicts that AMD’s profits will fall to $0.55 per share, up from $0.60 per share in the same period last year.

However, AMD has a good chance of beating market expectations by a wide margin due to the multiple AI-related tailwinds discussed above. The bright side is that AMD’s pullback has made the stock cheaper than before. This is evident from the chart:

AMD Price to Earnings Ratio (Forward) Chart

AMD Price to Earnings Ratio (Forward) Chart

AMD currently trades at a forward price-to-earnings ratio of 49 times and a price-to-sales ratio of less than 13. At the beginning of this month, its expected price-to-earnings ratio was more than 57 times and sales were more than 15 times. Savvy investors could consider using this dip to accumulate AMD stock as the aforementioned growth driver could help it regain its mojo, and a turnaround could begin as soon as next month when it releases its first-quarter 2024 results.

Should you invest $1,000 in Advanced Micro Devices right now?

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harsh johan The Motley Fool owns and recommends Advanced Micro Devices. The Motley Fool recommends Intel and recommends the following options: Long January 2023 $57.50 Intel calls, Long January 2025 $45 Intel calls, and May 2024 $47 long Intel calls. Motley Fool has disclosure policy.

AMD shares are down 15% from their 52-week high, here’s why you should buy it Originally published by The Motley Fool

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