Key takeout
- On Tuesday, the chipmaker reported higher-than-expected quarterly sales, giving an optimistic outlook for the current quarter.
- Despite a nearly 80% stock increase in the months leading up to the report, shares fell on Wednesday.
- Bank of America and Wedbush analysts see potential gains from chip sales in the latter half of the year, provided US-China trade tensions don’t escalate further.
The unexpected sales figures from Advanced Microdevices (AMD) didn’t seem to give their stock the boost many anticipated, especially after recent trends.
AMD’s second-quarter sales surpassed estimates, leaving Wall Street feeling hopeful about the future. Still, NVIDIA’s competitor saw its stock drop nearly 7% in recent trading.
While AMD’s gaming segment drove the stronger sales, other areas like data center revenues took a hit due to an $800 million penalty related to restrictions on AI chip exports to China. They expect growth across all units in the third quarter, particularly focusing on sales of the new MI355X AI chip.
Many analysts linked the Wednesday market reaction to overly optimistic expectations. A Citigroup analyst noted that guidance for the AI chip sector likely reflected investor sentiment, which could explain the decline in stock prices.
Bank of America analysts remarked that the market’s negative response seemed largely unfounded, describing it as “noise” in revenue. They also pointed out that the stock price had surged by around 80% before Tuesday’s results.
Potential benefits from sales in China?
There’s still uncertainty surrounding how much revenue AMD could see when it resumes sales of its MI308 chips in China, which was tailored for that market under the Biden administration’s restrictions. Last month, AMD and Nvidia mentioned they would start reviewing export license applications again after a halt from the Commerce Department. Nevertheless, AMD’s guidance on Tuesday did not include the MI308 sales.
One analyst from Bank of America reflected a more cautious approach, saying, “We don’t have a GPU license in China yet, which could be disappointing for those estimating a $500 million contribution from China in Q4.”
However, there is a glimmer of hope in the guidance. AMD forecasts between $1.7 billion and $1.7 billion in third-quarter revenues, suggesting a substantial portion would come from other markets, even if Chinese sales aren’t included.
Wedbush analysts shared a positive perspective, noting that the Q3 outlook exceeded expectations for data center GPU growth, despite the absence of the MI308 export license. They believe AMD is well-positioned for future quarters.
A rising price target. The ratings remained mixed
On Wednesday, Wedbush analysts adjusted AMD’s stock target from $170 to $190, maintaining an “outperform” rating. Citigroup also raised their target from $165 to $180, but kept a “neutral” rating due to elevated expectations.
Out of 11 analysts currently tracking AMD’s ratings and price targets, seven classify the stock as “buys,” while the rest provide a neutral assessment. The average price target is set at $183, suggesting a potential 5% rise from the closing price on Tuesday. On Wednesday, AMD shares were trading around $161.
