AMD Stock Analysis: Is the Chipmaker a Buy After Weak Outlook? Yes.

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Advanced Micro Devices (NASDAQ:AMD) recently reported its Q4 earnings, and shares dipped following the results. The company met expectations with its report, but the company’s management team did put forward a Q1 forecast that trailed behind Wall Street Expectations. This has important implications for AMD stock investors.

Despite growing AI chip sales, AMD stock fell as much as 6% in the most recent session following these results. Notably, AMD did see its stock price pare those gains in intraday trading, but investors are clearly focused on where the puck is headed with this company, over what it’s done in the past.

The company’s Q4 results showed an adjusted 77 cents in non-GAAP earnings per share. Thus, the question many investors have now is whether AMD is sandbagging its results, or if Wall Street is getting too optimistic.

Let’s dive into what to make of these numbers, and what AMD’s outlook is moving forward.

Disappointing Report

AMD boosted its 2024 AI processor forecast to $3.5 billion but missed Wall Street’s expectations. The company’s programmable chip and video game business fell, with a below-estimated first-quarter revenue outlook.

AMD’s recent quarter, with a miss on operating income and margins, unsurprisingly disappointed investors. The forward guidance for the current quarter fell short of expectations for $5.4 billion in revenue.

On the brighter side, AMD raised its 2024 GPU server sales forecast to $ 3.5 billion from $2 billion, driven by a 38% growth in the data center business,  now AMD’s most significant segment. The surge was thanks to strong sales of Instinct GPUs for AI, aligning with FactSet’s estimated data center business performance of $2.29 billion. 

AMD’s core servers and PC CPUs business has remained unchanged since the pandemic. Despite recent tweaks, gaming segment sales decreased 17%, and embedded segment revenue was down 24% year-over-year.

Areas of Weakness

The customizable chip market struggled, with AMD opening curtains to a 24% drop in fourth-quarter embedded segment revenue. It was equivalent to $1.1 billion. Intel clarified programmable chip inventories, expecting the trend to linger in the year’s first half.

AMD’s gaming segment, peaking from Microsoft’s (NASDAQ:MSFT) Xbox and Sony’s PlayStation 5 design, contracted 17% to $1.4 billion. Console revenue, a key alongside PC graphic cards, usually reaches its peak four years post-new system launches.

In Q4, the company’s client segment climbed 62% to $1.5 billion, showing a post-pandemic return to seasonal PC chip buying. A possible market growth is causing a stir in 2024, with demand driven by AI-enabled computers. Fourth quarter revenue was $6.17 billion, past the estimates of 77 cents per share.

Focusing on AI Update

Susquehanna analyst Christopher Rolland reiterated his favor on AMD, upping his price target to $210 from $170.

Investors were skittish for updates on MI300 guidance from AMD, waiting with bated breath whether the company met expectations. Rolland forecasted data center revenue to come in at a hefty $6 billion this year, expecting AMD’s to increased its guidance of $3 billion. 

AMD Stock Is Still a Buy

Despite these disappointing results, I think there’s still a lot to like about AMD’s positioning right now. The company’s Ryzen 7000 processors equipped with Ryzen AI on-chip accelerator surged in terms of sales. This segment benefitted from returning demand and a normalizing PC market inventory. AMD’s client segment profit was 10%, mirroring effective cost management and improved consumer market revenues.

Overall, if AMD continues to make progress in its key growth segments, and continues to see more AI-related market share, this is a company with a valuation that still has room to go. Compared to peers, AMD is actually the relatively favorable bet from a valuation standpoint. That means something, for many value-conscious growth investors.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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