AMD rises after BofA keeps Buy rating ahead of AI event spurring investor debate

Advanced Micro Devices’ (NASDAQ:AMD) stock rose about 3% on Thursday after BofA Securities maintained its Buy rating ahead of the company’s AI event on Oct. 10.

Analysts led by Vivek Arya said their top AI picks remain Nvidia (NVDA) and Broadcom (AVGO). However, they noted that AMD’s rating was maintained because the company is uniquely positioned for — CPU Share gains: AMD can capitalize in PC/server and CPU share market by taking share from Intel (INTC), which remains in turmoil with frequent restructuring.

The second is, AI growth: Ride the expanding AI market (2027 AI accelerator total addressable market, or TAM, at over $400B, according to AMD) where the leader Nvidia continues to expand the addressable market that is always looking for alternative merchant and application-specific integrated circuit, or ASIC, suppliers, according to the analysts.

Last year AMD’s event, known as Advancing AI, was held on Dec. 6 and produced 19%/80% stock returns 1/3 months later (compared to Philadelphia Semiconductor Index (SOX) up 10%/37%), as AMD unveiled a massive $400B 2027 TAM in AI accelerators, the analysts added.

Similarly, roadmap updates in AI (MI-325/250/400) and server CPU (Zen-5 based Turin, versus Intel Granite Rapids) with supporting cloud customer comments could reinvigorate AMD stock, which is up about 9% year-to-date, well below SOX which has risen around 22%, as per the analysts.

However, the competitive landscape is getting crowded, while expectations are already high with investors expecting AMD to boost 2024 AI sales by another 10% to over $5B, while showing a path to doubling it year-over-year to $10B in 2025, BofA noted.

Arya and his team added that current consensus of $5.1B/$9.7B/$12.8B for ’24/25/26 AI sales implies that AMD’s accelerator market share likely remains around 5% to 7%, well below its 20%+ share in consumer CPU and gaming GPU.

The analysts said that AMD is off to a remarkable start but it could be tougher to carve a bigger niche between Nvidia’s over 80% to 85% share, cloud incumbency, over 15-years software/developer lead on one extreme, and the nearly 10% market share presence of cost-optimized custom ASICs from Broadcom /Marvell Technology (MRVL) on the other extreme.

However, if, AMD is able to show a path to 10% AI share by 2026, it would conceptually add around $5B (on top of $12.6B) in sales, with scenario EPS of around $8-$9 (vs. consensus at $7.37).

Advanced Micro Devices (AMD) has a Hold rating at Seeking Alpha’s Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors’ average rating is more positive with a Buy, and so is the average Wall Street analysts’ rating Buy.