In August 2023, Advanced Micro Devices (NASDAQ:AMD), commonly known as just AMD, might seem like a former market darling that has lost its mojo. Don’t lose faith in AMD stock yet, though. The chipmaker’s quarterly results should convince clear-minded shareholders to stay invested.
Is it possible for AMD to be too ambitious with its artificial intelligence (AI) chip targets? Some analysts might complain that AMD is aiming too high, but I believe that this chip champ can continue to beat the Street and produce game-changing, AI-enabled processors.
AMD Stock Fails to Launch
Much to the shareholders’ chagrin, AMD stock fell after the company announced its second-quarter 2023 results. That surprised me, especially since AMD exceeded Wall Street’s sales and profit forecasts.
Specifically, AMD reported earnings per share (EPS) of 58 cents, beating the analyst consensus estimate of 57 cents. Also, AMD’s quarterly revenue of $5.36 billion surpassed Wall Street’s call for $5.32 billion.
Analysts with Citigroup called the results “good” and upgraded AMD stock from “neutral” to “buy,” while raising its price target on the shares from $120 to $136. Personally, I expect the stock to go higher than $136 — but more on that topic in a moment.
As you might expect, CEO Lisa Su emphasized AMD’s progress as a prime AI chip developer. “Our AI engagements increased by more than seven times in the quarter,” Su boasted.
All of this raises a couple of questions. Given AMD’s earnings beat, what could anyone possibly complain about? And, why would financial traders sell AMD stock after the release of the quarterly results?
Notable Complaints About AMD
There was a notable hiccup in AMD’s quarterly results, I’ll admit. In particular, AMD’s Data Center segment revenue declined 11% year over year to $1.3 billion. Regarding this disappointing result, AMD cited “lower 3rd Gen EPYC processor sales as Enterprise demand was soft and Cloud inventory levels were elevated at some customers.”
Hopefully, that issue will be resolved in the coming quarters. A more interesting complaint, though, pertains to AMD’s ambitions in the AI chip market.
I was shocked to see a Reuters report declaring, “AMD shares fall as analysts worry AI chip targets may be ambitious.” Usually, analysts cheer high expectations, but this seems to be an exception.
For the current quarter, AMD expects to generate revenue of around $5.7 billion plus or minus $300 million. Of course, the company’s AI chip revenue will play a significant role in achieving that goal.
Bernstein analysts apparently aren’t fully convinced that AMD will reach that objective, though. “Unless numbers get really material, soon, we fear estimates remain too high and the stock … looks a little stretched to us,” they warned.
Meanwhile, Summit Insights Group analyst Kinngai Chan sees both sides of the bull-bear issue. “The Bulls want AMD to be the next concept stock … the Bears say show me the results and make me believe the AI hype,” Chan stated.
AMD Stock: Set Your Sights on $150
I’m willing to acknowledge the complaints about AMD. The company might not reach its revenue objective, which relies heavily on AI chip revenue. Moreover, AMD’s decline in Data Center revenue is worth noting.
These aren’t sufficient reasons to give up on AMD, though. The company’s second-quarter results were mostly positive. And there’s no denying that AMD remains highly active in developing next-generation AI chips.
I’ve previously targeted $150 for AMD stock, and I’m sticking to that call. Folks who bet against AMD generally don’t win in the long run. So, feel free to hold your shares and don’t worry too much about the critics and complainers.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
