AMD Up on Strong August Semiconductor Sales: Is the Stock a Buy?
Advanced Micro Devices AMD shares gained 4.94% to close at $170.9 on Friday, following impressive semiconductor sales data for August.
The Semiconductor Industry Association reported a 3.5% month-over-month increase and 20.6% year-over-year growth in global semiconductor sales, which hit $53.1 billion, the highest ever recorded for August.
AMD’s chip peers — NVIDIA NVDA, Intel INTC and Broadcom AVGO — also rose 1.68%, 1.48% and 2.76%, respectively, following the strong sales data.
In the past one-month period, AMD shares have appreciated 23.7%, outperforming Intel and NVIDIA’s return of 18.4% and 17.3%, respectively. However, it lagged Broadcom shares, which were up 25.4% over the same timeframe.
One Month Performance
Image Source: Zacks Investment Research
Strong August Sales Infuse Confidence Among AMD Investors
The year-over-year sales percentage growth in August was the largest since April 2022, infusing renewed confidence among investors. Year-over-year growth was strongest in the Americas, with sales jumping 43.9%, trailed by China and Asia Pacific/All Other, sales of which increased 19.2% and 17.1%, respectively.
AMD has been benefiting from strong sales of its data center chips. Exiting second-quarter 2024, it had more than 900 public cloud instances available, with Netflix and Uber selecting fourth-gen EPYC public cloud instances. In the data center AI business, the MI300 accelerator’s quarterly revenues exceeded $1 billion for the first time.
The strong semiconductor sales growth supports 2024 and 2025 prospects, which bodes well for AMD and its chip peers. The World Semiconductor Trade Statistics (WSTS) projects global sales to reach $611.2 billion, indicating a 16% increase over 2023, up from the previous guidance of 13.1%.
IDC’s expectations for 2024 semiconductor sales are more optimistic. It expects more than 20% year-over-year growth, primarily fueled by heightened demand for AI chips and recovery in smartphone demand. For 2025, WSTS global sales are expected to grow 12.5%, ultimately reaching $687.4 billion.
Rich Partner Base, Acquisitions Aid AMD’s Prospects
Enterprise and Cloud AI customer pipeline remains robust. AMD and its partners, including Microsoft, Oracle, DELL, HPE, Lenovo, and Supermicro, have instinct platforms in production.
AMD’s acquisitiveness is aimed at primarily reducing the technological gap with NVIDIA in the ongoing race for AI dominance. It has been on an acquisition spree to strengthen its AI ecosystem.
In the past 12 months, AMD has spent $125 million on a dozen of acquisitions. Nod.ai and Mipsology are some other notable acquisitions in the recent past.
It recently closed the acquisition of Helsinki, Finland-based Silo AI. AMD is strengthening its data center AI footprint with the announced acquisition of ZT Systems for roughly $4.9 billion in cash and stock.
AMD’s initiatives to expand its portfolio are making it well-positioned to challenge NVDA not only in the data center market but also in the growing AI-enabled consumer PC market.
New offerings like the Instinct MI325X accelerator are helping to expand AMD’s footprint in the data center market. AMD has launched the Ryzen AI 300 Series, the third generation of AMD AI-enabled mobile processors, and Ryzen 9000 Series processors for laptop and desktop PCs.
AMD’s Estimate Revision Shows Upward Trend
AMD expects third-quarter 2024 revenues to be $6.7 billion (+/-$300 million). At the mid-point of the revenue range, this represents year-over-year growth of approximately 16% and sequential growth of approximately 15%.
The Zacks Consensus Estimate for third-quarter 2024 revenues is pegged at $6.71 billion, indicating 15.71% growth year over year. The consensus mark for earnings is pegged at 91 cents per share, up by a penny over the past 60 days, and suggests 30% year-over-year growth.
Advanced Micro Devices, Inc. Price and Consensus
Advanced Micro Devices, Inc. price-consensus-chart | Advanced Micro Devices, Inc. Quote
AMD Stock is Trading at a Premium
AMD stock is trading at a premium, as suggested by the Value Score of F.
The stock is trading at a premium with a forward 12-month Price/Sales of 8.99X compared with the Zacks Computer and Technology sector’s 6.15X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
However, the technical indicator is bullish for AMD as the shares trade above the 50-day and the 10-day moving averages, which indicates robust upward momentum.
AMD Shares Trade Above 50-Day & 100-Day SMA
Image Source: Zacks Investment Research
Conclusion
AMD’s expanding portfolio, thanks to acquisitions of Silo AI and ZT Systems, is expected to boost its top-line growth.
Although the weakness in the Gaming segment amid stiff competition from NVIDIA is a headwind, we believe a strong portfolio and expanding partner base justifies the premium valuation.
AMD currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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