AMD stock analysts revise price targets after China news

By | March 26, 2024

Lisa Su bij de Keynote: Lisa Su in gesprek met Ryan Patel als onderdeel van SXSW 2024. AMD racet om rivaal Nvidia in te halen op de AI-chipmarkt.

<p>Travis P. Bal/Getty Images</p>
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Lisa Su at the keynote: Lisa Su in conversation with Ryan Patel as part of SXSW 2024. AMD is racing to overtake rival Nvidia in the AI ​​chip market.

Travis P. Bal/Getty Images

AMD wants to capitalize on rising AI spending

The launch of OpenAI’s ChatGPT showed the promise of using AI apps to quickly search, parse and create content, unlocking a wave of AI research and development activity.

Companies across most industries are busy evaluating whether AI can improve practices and processes and create new, previously unforeseen revenue streams.

Related: AMD sees high demand for ‘Nvidia killer’ chips, but comes up with unexpected forecasts

Banks are using AI to hedge portfolio risks, manufacturers are looking at whether it can improve quality and maintenance, retailers are considering its potential to prevent theft, and the healthcare industry is investigating its use in drug development. The US government is even assessing whether AI can reshape warfare.

The increase in activity is exciting, but it also exposes shortcomings in the existing technology infrastructure. Networks are primarily built around lower-cost central processing units (CPUs) that perform basic tasks well but struggle to efficiently handle training and run complex AI programs.

The need for more powerful and energy-efficient servers has shifted the attention of companies and cloud solution providers, including Amazon, Google Cloud and Microsft’s Azure, to equipment with graphics processing units, or GPUs, made by Nvidia.

GPU’s ability to better meet the needs of AI developers has seen Nvidia’s revenues skyrocket, and AMD is expected to similarly benefit from the transition now that the MI300x is available.

Deloitte expects chips optimized for generative AI to exceed $50 billion by 2024. Nvidia’s CEO Jensen Huang recently said that the market for AI chips could eventually reach hundreds of billions.

AMD has come to a similar conclusion. Its CEO, Lisa Su, told investors earlier this year that its next-generation AI chips will reach $3.5 billion in sales this year, up from previous expectations of $2 billion.

Importantly, Su estimates that the AI ​​chip market could be worth as much as $45 billion by 2024, growing to $400 billion by 2027.

Advanced Micro Devices is facing headwinds in China

On March 24, the Financial Times reported that China had rolled out guidelines to remove Intel and AMD chips from government computers and servers.

Instead, China wants to ensure its systems are powered by silicon made by Chinese semiconductor companies such as Semiconductor Manufacturing International Corporation (SMIC), HiSilicon and Yangtze Memory Technologies Corp.

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This move is important because China was responsible for purchasing 54% of the world’s semiconductor chips in 2020, worth approximately $240 billion.

Historically, Chinese domestic production has been best suited to lower-end applications. It turned to the West for high-quality chips.

However, its dependence on foreign chips exposed the country to a similar risk cited by the U.S. government: the possibility that non-domestic technology could one day be used against the company.

As a result, China increased its efforts to support the development of more advanced domestic chips. These chips are apparently ready for prime time, given China’s push to use them in devices sold there.

The country’s decision to phase out U.S. chipmakers is reminiscent of last year’s decision to require government workers to switch from Apple devices to Chinese smartphone suppliers including Huawei, HONOR and Xiaomi.

That decision took a big bite out of Apple’s sales in China, causing fourth-quarter revenue to fall 13% to $21 billion.

With China accounting for 15% of AMD’s $22.7 billion in 2023 revenue, the impact of its decision could be significant.

Analysts have revised the outlook for Advanced Micro Devices

The latest in US vs. China tit-for-tat has caught the attention of two TheStreet Pro analysts, Stephen Guilfoyle and Bruce Kamich.

Guilfoyle has been picking stocks since he worked at the New York Stock Exchange in the 1980s, and Kamich has used technical analysis to evaluate major markets and stocks for more than fifty years.

Although AMD is Guilfoyle’s second largest holding, he keeps a close eye on it. If the Chinese news causes investors to worry about valuation, causing shares to fall, he could book some profits.

“AMD has been one of the darlings of the generative AI revolution, seen by many as the only challenger to Nvidia that might be able to capture some (maybe not much, but some) market share,” Guilfoyle wrote. “Yet AMD entered weekend trading at 53 times expected earnings.”

That’s arguably rich, considering Nvidia trades at 39 times forward earnings.

AMD’s stock price has fallen to around $180 from a peak of almost $227 in early March, which is right around its 50-day moving average. Many investors, including Guilfoyle, decide whether to buy or sell shares based on whether a stock price is above or below that moving average.

“Should AMD break contact with its 50-day SMA, there are risk managers on Wall Street who will force their portfolio managers to reduce long-side exposure,” Guilfoyle said.

Kamich also sees troubling signs in his analysis of AMD’s stock charts.

“I see a dramatic looking top reversal pattern,” Kamich wrote. “The weekly magazine [On-balance volume] The OBV line shows us the early start of a decline. The [Moving average convergence divergence] The MACD oscillator has narrowed in recent weeks and is close to a downside crossover and profit-sell signal.”

Balance volume is essentially a measure of rising and falling daily volume. MACD is a momentum indicator.

Using point-and-figure graphs, Kamich calculated various price targets.

The daily P&F price target of $155 is concerning for short-term investors. However, long-term investors can take comfort in the fact that the weekly P&F target of $358 remains much higher than current prices. Of course, this weekly target could change if AMD stock loses more ground.

That said, P&F charts are not guaranteed and do not indicate when a goal can be achieved.

While the Chinese news could mean AMD shares move lower, it’s possible we could see a similar scenario play out for AMD as we saw with Nvidia last October.

When the US government announced AI chip restrictions, Nvidia shares fell 17% from peak to trough. Since then, they are up 144%.

Regardless, investors may want to keep a close eye on what happens with AMD stock given Guilfoyle and Kamich’s comments.

Related: Veteran fund manager picks favorite stocks for 2024

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