Advanced Micro Devices Inc. shares have been on a tear lately - rising 28% off their March lows - and Melius Research analyst Ben Reitzes thinks they can go higher still.
But first, he unpacked the drivers of the recent rally. With AMD shares $(AMD)$ up 7% this week alone, there seems to be enthusiasm about Taiwan Semiconductor Manufacturing Co. Ltd.'s $(TSM)$ upbeat results and what they say about the health of the chip sector. Beyond that, though, he also sees encouraging indicators in the personal-computer market as well as "manageable" expectations for AMD when it comes to artificial-intelligence chips.
In PCs, Reitzes sees signs that AMD's PC central-processing units saw sequential growth in the second quarter, and that the company is benefiting from overall industry growth thanks to execution-related delays from a chip designed by Meteor Lake PC - a rival of Intel Corp. $(INTC)$
"PC growth should pick-up into 2025 helped by an aging installed base and improved corporate demand," he wrote, noting that AI PCs could be a second-half driver if Microsoft Corp. $(MSFT)$ can fix problems with the Recall AI feature on its Copilot+ PCs.
In terms of AI server chips, Reitzes flagged some investor worries about AMD's competitive position versus Nvidia Corp. $(NVDA)$ and whether big spenders like Microsoft and Meta Platforms Inc. (META) will keep their frenzied buying pace.
"All these concerns may be a bit overblown now that expectations have come down," Reitzes wrote. "Within six months, the market should become more focused on the 2025 figure, which should still grow considerably" from a year earlier.
He also likes the company's recently announced Silo AI acquisition. "This deal won't put AMD on par with Nvidia, but it does help in terms of being able to support its ecosystem and driving some incremental business," he said.
Reitzes' $210 target price implies 14% upside from current levels "andcould be conservative given the potential for [second-half] momentum and some changes in perception into 2025," he wrote.
Comments