To The Moon

AMD Earnings: The Quarter Could Be Tough, but the AI Future Looks Bright

$Advanced Micro Devices(AMD)$   is expected to show only modest growth when the chip maker report's March quarter results on Tuesday afternoon. As Intel's results last week demonstrated, demand for PC and non-AI data center processors remains soft.

But investor focus when it comes to AMD shares isn't this quarter. The market is focused on the substantial long-term potential for AI-provided riches as the chip maker takes on $NVIDIA Corp(NVDA)$   with a new line of GPUs for artificial intelligence training and inference workloads.

Late last week, $Intel(INTC)$   offered a reasonable hint at what's coming, providing mixed results with revenues falling a little shy of Wall Street's estimates. The issue for Intel was that June quarter guidance disappointed. CEO Pat Gelsinger told Barron's that the company saw soft demand in all areas aside from AI chips. "Everybody has seen that the market is just a little soft" outside AI, he said.

The AMD earnings report will show if "everybody" includes AMD.

Estimates as tracked by FactSet call for AMD to post revenue for the March quarter of $5.48 billion, up 2% from a year earlier, with profit of 62 cents a share.

AMD's guidance calls for revenue of $5.4 billion, give or take $300 million, with flat revenue from its data center segment, anticipating that a seasonal decline in server sales will be offset by strong demand from data center GPUs.

AMD forecasts client, embedded, and gaming segment sales would decline sequentially from the December quarter, with semi-custom chip revenue expected to fall by "a significant double-digit percentage." AMD projected non-GAAP gross margin for the quarter of 52%.

Consensus estimates for the June quarter call for revenue of $5.73 billion, up 7%, with a profit of $1.02 a share.

BofA Global Research analyst Vivek Arya writes in a note previewing the March quarter that continued server strength for both CPUs and GPUs should "more than offset" the ongoing PC correction and weakness in other areas. He thinks inventories in server CPUs should normalize after a 33% drop in year-over-year shipments in 2023.

Arya expects a "broad-based cyclical recovery" in non-AI segments in the second half along with accelerating demand for AI processors. He notes that the Street is super-bullish on the outlook for AMD's MI300 AI chips. He points out that the Street consensus for 2025 calls for $9.5 billion in sales of MI300s, while buy-siders expect the total to be as high as $12 billion to $15 billion. Arya maintains a Buy rating and $195 target price on AMD shares.

As of Monday's close, shares were at $160.20, up 8.7% this year.

TD Cowen analyst Matthew Ramsay likewise keeps his Buy rating and $200 target price heading into the earnings report. The setup for the stock would have been "tricky" if not for a recent downswing that knocked shares down by about 25% since peaking in early March, Ramsay says. The stock looks more appealing now in his view. "Sentiment has changed a lot more than fundamentals for AMD this quarter," he writes. Ramsay expects "data center strength and well-known softness elsewhere."

Ramsay's prediction for the quarter boils down to this: "Data center good, everything else...meh." He notes that the focus for the stock is now all about the MI300 and its successors, which he thinks can reach revenue of $15 billion in 2026 and $20 billion in 2027.

Ramsay thinks AMD can earn $10 or more a share by 2027, up from his estimates of $3.63 a share this year and $5.55 next year. The stock, he adds, remains one of his top picks.

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