Advanced Micro Devices - Stock Analyst Research

Target Price* 195.00
Recommendation ACCUMULATE
Market Cap*-
Publication Date5 Feb 2024

*At the time of publication

Advanced Micro Devices Inc. - AI demand still hot

  • 4Q23 revenue was within expectations. PATMI was above expectations due to higher tax benefits and interest income. FY23 revenue was at 99% of our FY23e forecasts, while PATMI was ~US$1bn above.
  • Data Centre (DC) and Client (PC) segments continue to drive revenue growth, with YoY expansion of 38%/62%, respectively. FY24e revenue from MI300X DC GPUs was revised up from US$2bn to US$3.5bn on stronger customer demand and order book.
  • We double our FY24e PATMI estimates to US$3.4bn due to expanding margins from higher contribution of DC products, while also rolling over an additional year of valuations. We expect overall revenue growth in the near term to be driven by robust AI-related demand, offset slightly by weak Gaming and Embedded segments. We upgrade to ACCUMULATE from NEUTRAL with a raised target price of US$195.00 (prev. US$110.00). Our WACC assumption of 7.4% remain unchanged, but we increase our terminal growth rate to 5% (prev. 4%) on higher AI demand.

The Positives

+ Turning more bullish on its Data Centre business. AMD saw positive DC growth (38% YoY) exiting FY23, setting quarterly and annual revenue records for its AI-related GPUs (MI300) and CPUs (4th Gen EPYC), as demand from Cloud hyperscalers continued to accelerate. AMD also gained server CPU share (from Intel) in 4Q23. MI300X revenue tracked above AMD’s US$400mn guidance, with management raising FY24e MI300X revenue guidance from US$2bn to >US$3.5bn, citing stronger customer commitments from AI customers. AMD expects 1Q24e DC revenue to be flat QoQ, with ~10% decline in seasonality offset by a stronger GPU ramp.

 

+ Margin tailwinds moving into FY24. AMD is guiding 52% adj. gross margins in 1Q24e, a 120bps sequential increase vs 4Q23, as the company benefits from a larger mix of higher-margin DC products. We expect margins to improve sequentially across FY24e due to: 1) faster growth of DC products vs other products; 2) expected recovery of the Embedded segment in 2H24e; 3) working through its initial AI accelerator (Instinct) ramp.

 

The Negative

– Weak outlook for Gaming and Embedded to remain a drag. Management’s outlook for its Gaming and Embedded segments remained very weak, with most customers still working down their inventory levels. On a sequential basis, AMD expects Gaming revenue to decline >30% in 1Q24e due to excess component inventory of its Console customers, and with Embedded declining ~8-10%. This translates to a YoY decline in Embedded and a significant double-digit decline in Gaming. Gaming and Embedded contributed ~40% of total revenue in 4Q23.

 

About the author

Jonathan Woo
Research Analyst
PSR

Jonathan covers the US technology sector focusing on internet companies. Formerly a national and professional athlete, he graduated from the University of Oregon with a Bachelor’s Degree in Social Sciences.

Latest Reports

Contact us to Open an Account

Need Assistance? Share your Details and we’ll get back to you

IMPORTANT INFORMATION

This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

This advertisement has not been reviewed by the Monetary Authority of Singapore.  

 

Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com