Investing.com -- Bank of America (BofA) analysts reiterated a Buy rating for AMD (NASDAQ:AMD) stock ahead of the company's “Advancing AI” event scheduled for October 10.
Analysts highlighted that AMD's previous AI event on December 6 was followed by significant stock gains of 19% and 80% over the subsequent one and three months, outperforming the Philadelphia Semiconductor Index index's 10% and 37% increases.
The upcoming event, where AMD is expected to unveil roadmap updates in AI and server CPU alongside supporting cloud customer comments, “could reinvigorate AMD stock,” which has seen a modest year-to-date (YTD) increase of 9%, lagging behind SOX's 22% rise.
Despite the competitive landscape in AI accelerators becoming increasingly crowded, BofA highlighted the potential for AMD to increase its market share.
The current market consensus estimates AMD's AI sales to reach $5.1 billion in 2024, with a potential to double year-over-year to $10 billion in 2025.
The current consensus for AMD's AI sales in 2024-2026, estimated at $5.1 billion, $9.7 billion, and $12.8 billion, suggests the company’s market share in accelerators will likely remain around 5-7%, significantly lower than its 20%+ share in consumer CPUs and gaming GPUs.
While AMD has made an impressive start, BofA cautions that expanding its share further could be challenging given NVIDIA Corporation's (NASDAQ:NVDA) dominant 80-85%+ market share and strong position in the cloud, alongside competition from cost-optimized custom ASICs from companies like Broadcom (NASDAQ:AVGO) and Marvell (NASDAQ:MRVL).
However, if AMD can demonstrate a credible path to securing over 10% of the AI market share by 2026, it could add approximately $5 billion to its sales, with potential earnings per share (EPS) of around $8-$9, compared to the consensus estimate of $7.37.
“Faster growth could also help AMD rerate towards 30-55x forward price-to-earnings (PE) it managed to trade during prior periods of rapid share gains and 40%+ annual sales growth,” BofA analysts said.
“We expect AMD to emphasize its improving end-end positioning including recent acquisitions (ZT Systems, Silo AI), open-source software (ROCm) and networking (infinity fabric),” they added.
BofA also reflected on the broader debates affecting AMD's stock performance, including competition from Intel (NASDAQ:INTC), sluggish PC demand, rising competition from ARM-based servers and PC CPUs, challenges in raising prices for AI silicon, and the pace of recovery in non-AI embedded and gaming markets. These segments are crucial as they represent 20-25% of AMD's sales and are considered the most profitable yet cyclical.