To The Moon

AMD $Advanced Micro Devices(AMD)$ stock is up 2.1% year-to-date, currently trading at $150.5, which is 28.8% below its all-time high of $211.38.

 Key Points to Know About AMD:

 1) 2Q 2024 Earnings Beat Expectations:

• AMD's 2Q 2024 revenue and EPS exceeded market expectations, as did its earnings guidance.

• Earnings per Share: +19% YoY, $0.69 adjusted vs. $0.68 expected.

• Revenue: +9% YoY, $5.84 billion vs. $5.72 billion expected.

• Guidance: For Q3 2024, AMD projects revenue of around $6.7 billion, a 16% YoY increase, beating the $6.61 billion expected.

• Data center GPU revenue is expected to exceed $4.5 billion in 2024, up from the $4 billion guided in April.

2) Data Center Growth is Promising but Relatively Slower than Nvidia’s:

• The data center segment is closely related to AI development, so investors should focus on this segment when analyzing AMD.

• AMD’s Data Center revenue increased by 115% YoY to $2.834 billion, with a QoQ growth of 21%.

• In comparison, Nvidia’s data center revenue growth for the quarter ending in July is expected to be 142% YoY and 11% QoQ.

• AMD’s data center segment is growing slower than Nvidia’s and currently represents 11% of Nvidia’s size.

• Ideally, I would like to see AMD achieve faster year-over-year and quarter-over-quarter growth than Nvidia in the Data Center segment, given AMD's smaller base. This is similar to how Google Cloud's revenue should grow at a faster rate than Amazon AWS, as Google Cloud is only 39% the size of AWS.

• While its data center’s operating income increased by 405% YoY to $743 million, the operating margin for the data center is only 26%, whereas Nvidia’s overall operating margin (including data center, Gaming, etc.) is 65%.

• The Data Center segment accounts for 48% of AMD’s total revenue, whereas Nvidia’s data center segment accounts for 87% of its total revenue.

• Overall, AMD does not appear to be a better AI investment than Nvidia based solely on the data center segment.

3) AMD’s $4.9 Billion ZT Systems Acquisition:

• AMD’s stock rose 4% following the news of its ZT Systems acquisition on August 19.

• ZT Systems is a leading hyperscale systems design and ODM house for GPU rack systems.

• AMD will retain ZT Systems’ 1,000 design engineers, suggesting this may also be an acqui-hire, an acquisition primarily to acquire human capital.

• AMD appears to only maintain the design services and sell the manufacturing arm of ZT Systems.

4) AMD Stock May Have Found Its Interim Low at $121.83

• AMD stock recently rebounded from the 61.8% Fibonacci Retracement level at $120.55 and hit a pause at the 38.2% Fibonacci Retracement level at $161.32.

• Major support levels include $140.94, $120.55, and $91.53, whereas major resistance levels are $161.32, $186.54, and $227.30.

Source: Tiger PC App

Conclusion:

• Nvidia $NVIDIA Corp(NVDA)$ remains the better AI investment, with a higher percentage of AI revenue relative to total revenue, greater absolute AI revenue, faster AI revenue growth, and a larger market share in AI chips

• AMD will still benefit from the AI boom, but it is more likely that when Nvidia stock has risen too much or its valuation has become too expensive, investors will then prefer AMD as a laggard play that will catch up in performance to Nvidia.

• I remain constructive on AMD. Hyperscalers will continue to purchase AMD AI chips to reduce Nvidia's pricing power.

• Bloomberg analysts’ consensus shows a 12-month target price of $184.89, representing an upside potential of 22.9% relative to Friday’s closing price of $150.5.

Source: Bloomberg, 28 Aug 2024