On Wednesday, Citi adjusted its outlook on shares of AMD (NASDAQ:AMD), reducing the price target to $200 from the previous $210 while still endorsing the stock with a Buy rating. The revision follows AMD's earnings report released Tuesday after the market closed, where the company posted satisfactory financial results but provided guidance that fell short of market expectations, primarily due to weaker gaming margins.
AMD has revised its revenue forecast for its upcoming MI300 product upwards, from over $4.5 billion to more than $5.0 billion. This updated projection was anticipated by analysts ahead of the announcement. Despite this positive revision, AMD anticipates that the MI300 will initially have a dilutive effect on profit margins, which is expected to impact the company's stock valuation multiple.
Citi reaffirmed its Buy rating on AMD but acknowledged that the anticipated margin pressures from the MI300 are a factor in the lowered price target. The firm's analyst cited the reduced gaming margins and the margin dilution from the MI300 as the primary reasons for the adjustment.
In the statement released, the analyst noted, "Yesterday after the close, AMD reported decent results but guided below Consensus driven by lower gaming margins. AMD raised its C24 MI300 forecast from over $4.5 billion to over $5.0 billion as we previewed. However, AMD expects the MI300 to be margin dilutive for some time and we expect it to weigh on AMD's stock multiple. We reiterate our Buy rating on AMD but lower our price target from $210 to $200."
The updated price target reflects both the potential of AMD's MI300 and the near-term financial headwinds the company faces. Despite the lowered target, the firm's stance remains positive on AMD's long-term prospects.
In other recent news, Advanced Micro Devices (NASDAQ:AMD) has faced some challenges. Barclays, while maintaining its Overweight rating on AMD, has reduced the price target from $180 to $170 due to potential headwinds in the client segment. The firm anticipates a challenging start to 2025, with predictions of a decline greater than typical seasonal patterns. Despite these challenges, Barclays believes AMD remains robust within the AI ecosystem.
AMD's integration of the forthcoming ZT technology could erode some of the company's remaining financial leverage. However, the company's MI300 product ramp is progressing well, with expectations now exceeding $5 billion. In other developments, AMD's shares have declined due to a subdued AI chip forecast and projected Q4 earnings miss, primarily attributed to supply chain constraints.
OpenAI has announced a collaboration with Broadcom (NASDAQ:AVGO) Inc. and Taiwan Semiconductor Manufacturing Company (TSMC) to create its inaugural in-house artificial intelligence chip, incorporating AMD chips to satisfy its growing infrastructure needs. This strategy aims to manage costs effectively.
InvestingPro Insights
To enrich the analysis of AMD's current position, let's consider some key metrics from InvestingPro. Despite Citi's lowered price target, AMD's market capitalization stands at an impressive $269.07 billion, reflecting its significant presence in the semiconductor industry. The company's revenue for the last twelve months as of Q2 2024 reached $23.28 billion, with a notable revenue growth of 6.4% over the same period.
InvestingPro Tips highlight that AMD is expected to see net income growth this year, aligning with the company's optimistic forecast for its MI300 product. This expectation is further supported by analysts' predictions that the company will remain profitable this year. However, investors should note that AMD is trading at a high P/E ratio of 198.13, which may be influenced by the anticipated margin pressures mentioned in Citi's analysis.
It's worth noting that AMD has shown strong performance in the market, with a significant 72.85% price return over the past year. This aligns with the InvestingPro Tip indicating AMD's high return over the last year, suggesting investor confidence in the company's long-term potential despite short-term challenges.
For readers interested in a more comprehensive analysis, InvestingPro offers 16 additional tips on AMD, providing a deeper understanding of the company's financial health and market position.
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