Bank of America Analysts Reiterate Buy Rating for AMD

Bank of America (BofA) analysts have reaffirmed a Buy rating for AMD (NASDAQ:AMD) stock ahead of the company’s upcoming “Advancing AI” event set for October 10.

Previous Gains

Analysts pointed out that AMD’s last AI event on December 6 resulted in remarkable stock increases of 19% and 80% over the next one and three months, respectively, significantly outperforming the Philadelphia Semiconductor Index, which saw 10% and 37% gains.

Expectations for the Upcoming Event

The forthcoming event is anticipated to present updates on AMD’s AI and server CPU roadmap, along with comments from cloud customers. Analysts believe this could “reinvigorate AMD stock,” which has had a year-to-date increase of only 9%, compared to the 22% rise of the SOX index.

Market Potential

Despite the increasingly crowded AI accelerator market, BofA believes in AMD’s ability to expand its market share. Current estimates suggest AMD’s AI sales could hit $5.1 billion in 2024, potentially doubling to $10 billion in 2025. For 2024-2026, the projections are $5.1 billion, $9.7 billion, and $12.8 billion, indicating that AMD’s market share in accelerators may remain around 5-7%, compared to over 20% in consumer CPUs and gaming GPUs.

Competition Challenges

BofA warns that increasing AMD’s share could be difficult due to NVIDIA Corporation’s (NASDAQ:NVDA) dominant 80-85% market share and its robust cloud presence, as well as competition from cost-efficient custom ASICs from firms like Broadcom (NASDAQ:AVGO) and Marvell (NASDAQ:MRVL).

However, if AMD can prove a reliable strategy to capture over 10% of the AI market share by 2026, it could potentially boost sales by approximately $5 billion with earnings per share (EPS) around $8-$9, exceeding the consensus estimate of $7.37.

Faster growth could enable a rerating towards a 30-55x forward price-to-earnings (PE) ratio that AMD experienced during previous rapid growth phases with 40%+ annual sales increases.

Broader Market Considerations

BofA highlights ongoing concerns affecting AMD’s stock performance, including competition from Intel (NASDAQ:INTC), weakened demand for PCs, rising competition from ARM-based servers and PC CPUs, challenges in price increases for AI silicon, and the recovery pace in non-AI embedded and gaming markets, typically comprising 20-25% of AMD’s sales and regarded as the most profitable yet cyclical.