Advanced Micro Devices (AMD) recently reported its Q1 2024 results, with net income hitting $123 million, compared to a net loss in the same period last year. Revenue also increased by about 2% to $5.47 billion. The company’s success has been attributed to the improving PC market and growing demand for its artificial intelligence chips. However, AMD’s gaming business, which produces chips for consoles and PCs, is facing challenges.
AMD is now focusing on the AI market, with GPUs becoming essential for AI-related workloads. The company’s Data Center segment, including sales of server and AI chips, saw an 80% increase year-over-year to $2.3 billion. AMD is projecting AI chip sales of $4 billion for the year, up from the previously projected $3.5 billion. The company is gaining traction in the server CPU market as well, thanks to the AI boom and its ability to offer alternatives to Nvidia.
While AMD’s gaming segment revenues declined by 48% year-over-year to $922 million, client sales surged by 85% to $1.4 billion, signaling the end of the PC slump. The company is also gaining market share in server CPU sales, as central processors are often paired with AI chips. Despite facing challenges from Intel, AMD has managed to outperform its rival thanks to the increasing demand for AI applications.
AMD stock has seen significant gains, rising by 80% from early January 2021 to around $160. However, the stock’s performance has been volatile, with returns of 57% in 2021, -55% in 2022, and 128% in 2023. In comparison, the S&P 500 experienced returns of 27% in 2021, -19% in 2022, and 24% in 2023. While AMD underperformed the S&P in 2022, the Trefis High Quality Portfolio, comprising 30 stocks, has consistently outperformed the benchmark index.
AMD stock currently trades at about 44x consensus 2024 earnings, which is considered a high multiple. However, the ongoing recovery in the PC market and the increasing demand from AI applications could justify this valuation. Trefis values AMD stock at around $163 per share, slightly higher than the current market price. Investors are advised to keep an eye on AMD’s performance in the coming months, especially in the uncertain macroeconomic environment with high oil prices and elevated interest rates.
