AMD: Generational Buying Opportunity

seekingalpha11-20 00:36

AMD has been underperforming but is poised for a rally, supported by favorable Q3 trends and reaching a multi-year support level.Q3 earnings showed significant YoY growth, especially in the Data ...

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JHVEPhoto  Thesis Summary Advanced Micro Devices, Inc. (NASDAQ:AMD) has been underperforming the chip sector, but I believe this will soon end. We have seen some encouraging trends in Q3, and I think there’s going to be even more to get excited about in Q4. On top of that, we have recently reached a multi-year support level in the AMD chart, which could lead us to a multi-year rally. In my last article, I discussed the outlook for the upcoming earnings, while drawing a comparison, or rather lack thereof, between AMD and ASML Holding N.V. (ASML). The tailwinds that support AMD’s long-term trajectory are still present, and the stock is even more compelling now that it is near support and cheaper. Q3 Review Advanced Micro Devices reported its Q3 earnings at the end of October, showing continued YoY growth in revenues and earnings.   AMD P&L (Investor slides) As we can see above revenues increased by 17% QoQ, with gross margin expanding by 1 ppt. Meanwhile, operating income was up 169% QoQ, leading to an increase of almost 200% in EPS. The comps were quite favorable here, but they show AMD’s ability to keep increasing earnings, which is exactly what analysts expect, but a lot of people are overlooking.   Outlook (Investor slides) For the coming quarter, we will continue to see an increase in Gross Margins, while the company expects over $7.5 billion in revenues. And of course, the Data Center continues to be the engine of growth here: Data Center segment operating income was $1 billion or 29% of revenue compared to $306 million or 19% a year ago. Data Center segment operating income more than tripled compared to the prior year, driven by higher revenue and operating leverage. Source: Earnings Call. There’s definitely a lot to get excited about, but we should also cover the negative points. The Gaming and Embedded segment did not do well, although it seems like we could start seeing some growth in 2025. However, the overall outlook for the company was weaker than expected, and we saw that AMD recently laid off 4% of the workforce. 3 More Reasons To Buy AMD With that said, I still think there are compelling reasons to buy AMD at these price levels. NVIDIA Corporation (NVDA) Isn’t Perfect Recent news surfaced this week that NVIDIA’s new Blackwell chips were beginning to overheat, once they were connected to racks that are meant to hold up to 72 chips. It seems this could be due to a technical issue and let’s remember that these are the Blackwell GPUs which were already delayed for a quarter due to different technical issues which have now been fixed. While this is far from a big issue for NVIDIA, in my opinion, it proves the point that the company is far from perfect. We are already seeing NVIDIA make mistakes as it rushes to deliver new chips faster than it has before, and this may keep happening. AMD is the best alternative out there, and companies will eventually begin to diversify their purchases. AMD’s Inference When it comes to the AI market, there are two markets. Training and Inference. What we have seen in the last few months is AMD beginning to specialize more in inference. Their chips are now mainly used to do inference at Meta Platforms, Inc.’s (META) Llama.  Meta announced they have optimized and broadly deployed MI300X to power their inferencing infrastructure at scale, including using MI300X exclusively to serve all live traffic for the most demanding Llama 405B frontier model. We are also working closely with Meta to expand their Instinct deployments to other workloads where MI300X offers TCO advantages, including training. Source: Earnings Call. Inference is where it’s at, and if AMD can excel in this area, then there might be a good reason to invest. Valuation And of course, we can’t argue with the valuation.   AMD Valuation (Seeking Alpha) AMD trades below 1 forward PEG, which I find very compelling. The company is expected to accelerate its earnings in the next few years, and as this happens investors will begin to realize that NVIDIA isn’t the only chipmaker in town. Technical Analysis My favourite thing about AMD right now though is the technical outlook.   AMD Technical Chart (Trendpsider) I’ve seen a lot of people argue that the chart isn’t encouraging, but isn’t that always the case before a reversal? AMD is now sitting at a multiyear support level, marked by the black trendline below. This level has held over the last three years, and I don’t expect it to break now. From a structural perspective, I think we completed a five-wave impulse back in April, and we have since retraced in a clear ABC.   AMD Technical chart (Trendspider) Zooming into the 4h chart, we have actually reversed at the lowest possible fib retracement, which is so far a good sign. We also have the RSI bouncing from oversold and the MACD ready for a bullish crossover. Final Thoughts  Personally, I like this set-up in AMD thanks to favourable industry tailwinds, fair valuation, and immediate support just below. Remember, it’s always darkest before dawn.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":1,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2484920011"}