On Wednesday, BofA Securities maintained a Buy rating on shares of Advanced Micro Devices (NASDAQ:AMD), with a steady price target of $180.00. The firm's analysis acknowledged AMD's modest third-quarter performance that slightly exceeded expectations, alongside a fourth-quarter forecast that aligns with projections, including an anticipated rise in the AI segment to over $5 billion for calendar year 2024.
The commentary from BofA Securities pointed out that while the lack of significant upward revisions and weaker first-half calendar year 2025 earnings seasonality might lead to a convergence of Street calendar year 2025/26 per-share earnings estimates with BofA's predictions of approximately $4.70 and $6.00, respectively, down from the previous $5.45 and $7.34.
This adjustment is seen as a short-term negative but is also considered a necessary reset for AMD as it approaches calendar year 2025.
Despite potential reductions in consensus earnings per share (EPS), BofA Securities projects a robust year-over-year EPS growth rate of 40% and 30% for calendar years 2025 and 2026. The firm notes that the implied price-to-earnings ratio for calendar year 2025 is 33x, which aligns with AMD's historical median.
The $180 price objective is based on an unchanged 38x multiple of the projected calendar year 2025 EPS of $4.70, which is only $0.04 lower than previous estimates.
BofA Securities' stance is underpinned by a belief in AMD's strong position as the second major player in various lucrative CPU and AI accelerator markets. This position is expected to provide opportunities for continued market share gains. The firm's reiterated Buy rating reflects confidence in AMD's market strategy and growth potential, despite the near-term adjustments to earnings expectations.
In other recent news, Advanced Micro Devices (AMD) reported strong performance in the recent quarter, with revenues from the MI300 Data Center GPU product family surpassing expectations at over $1.5 billion.
Analysts from Deutsche Bank held steady with a $150 price target, noting AMD's solid margin expansion and projections for 2024 revenues surpassing $5 billion. However, the bank also noted a plateauing in margin expansion due to the impact of the MI300 on gross margins and increased operating expenses.
Evercore ISI raised its price target for AMD to $198, highlighting the company's strong position in the merchant accelerator market and ongoing market share gains. This comes despite a recent decline in AMD's shares following its earnings report. Citi also adjusted its outlook and reduced its price target to $200, citing expected margin pressures from AMD's MI300 product and reduced gaming margins.
Barclays maintained its Overweight rating on AMD but 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.
In other developments, AMD increased its revenue forecast for its upcoming MI300 product from over $4.5 billion to more than $5 billion. OpenAI 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.
However, AMD has projected its fourth-quarter revenue to be slightly below market expectations, attributing the shortfall to supply chain constraints.
InvestingPro Insights
To complement BofA Securities' analysis, recent data from InvestingPro offers additional context on AMD's financial position and market performance. 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 AMD's strong market performance, with a significant 72.85% price return over the past year and a 20.09% return in the last three months. These figures align with BofA Securities' optimistic outlook on AMD's growth potential. Additionally, InvestingPro notes that AMD is expected to remain profitable this year, supporting the firm's projections for robust EPS growth in the coming years.
It's worth noting that AMD is trading at a high P/E ratio of 198.13, which may raise questions about valuation. However, this should be considered in light of the company's growth prospects in the AI segment, as mentioned in the BofA Securities report.
For investors seeking 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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