Advanced Micro Devices (NASDAQ: AMD) stock achieved a 52-week high on March 8, but shares have fallen more than 15% since then despite no significant company news. Even while claims that China is intending to replace AMD and Intel chips in government servers and PCs briefly weighed on the stock price, AMD shouldn't be concerned in the long run. Here's why
AMD shouldn't find China sanctions problematic. Chip sales to China account for 15% of AMD's revenue. So, any bans on AMD's semiconductor sales in that country may hurt its finances. AMD will have other markets for its chips if it cannot sell them in China due to semiconductor industry dynamics.
Artificial intelligence is predicted to boost global sales of servers and PCs. PC sales declined 2.7% in the fourth quarter of 2023, compared to 14% overall. The industry will turn around in 2024 due to a new refresh cycle in enterprise and education industries and AI-enabled PCs.
Canalys predicts 48 million AI PCs will ship this year, 18% of the market. Additionally, AI PC shipments might expand 44% annually through 2028 and account for 70% of the market. Canalys predicts a 10% to 15% premium for AI PCs over regular machines.
AMD can increase CPU volumes and ASP. AMD has been gaining PC market share from Intel. Mercury Research reported that the company held 20.2% of the client CPU market in Q4 2023, up from 17.1% the year before. Mercury Research credited AMD's Ryzen 7040 processor's early entry into AI PCs for the share gains. AMD claims that 90% of AI PCs use its CPUs. Thus, higher demand for AI PCs will boost AMD's client CPU business.
Similar trends are predicted in server CPU and GPU markets. AMD controlled 23% of the server CPU market in 2023, up from 17.6% in 2022. AMD CEO Lisa Su said on the recent earnings conference call that "robust demand for EPYC server CPUs across cloud, enterprise, and AI customers."
AMD said that "a growing number of customers are adopting EPYC CPUs for inferencing workloads." AMD's server CPU momentum is sustainable, as AI servers are expected to expand 26% year through 2029. AMD's AI GPUs also sold better than expected.
AMD raised its full-year data center GPU revenue projection to $3.5 billion from $2 billion. Management stated on the earnings conference that an improving supply chain might help it fulfill increased demand and exceed that level. AMD is poised to exceed analysts' predictions in the next quarters.
AMD may beat investor expectations with growth. On January 30, 2024, AMD reported fourth-quarter 2023 earnings and guided for $5.4 billion in first-quarter 2024 revenue at the midpoint. Revenue would be essentially steady from $5.35 billion last year. In addition, AMD's non-GAAP gross margin projection of 52% for the current quarter would be up from 50% last year.
Thus, AMD's Q1 revenue and earnings may rise. Analysts predict AMD to report $5 billion in quarterly revenue, below its guidance. Additionally, consensus expectations predict AMD's earnings would fall to $0.55 per share from $0.60 per share last year.
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