Is AMD Stock a Buy?

Semiconductor chip manufacturer Advanced microdevices (NASDAQ:AMD) has benefited from the rise of artificial intelligence (AI). Demand for the company’s custom AI chips has spurred its shares to soar from less than $100 a share last year to a 52-week high of $227.30 in March.

But after the company announced earnings for its fiscal first quarter ending March 30, AMD shares took a nosedive. Does this create an opportunity to acquire shares? Or are there reasons to postpone the purchase?

To come up with an answer, you need to look at where AMD currently stands. Then combine this with an assessment of your business growth potential over the next few years.

Why AMD Stock Has Dropped Recently

AMD’s stock price fell after the company’s fiscal first-quarter earnings report failed to meet Wall Street expectations. This reaction may be exaggerated.

AMD achieved $5.5 billion in revenue in the first quarter, up 2% year over year. The company previously forecast first-quarter revenue of about $5.4 billion in its outlook.

AMD also estimated that its fiscal second-quarter sales will reach about $5.7 billion, an increase from $5.4 billion a year ago.

Considering the strong demand for AI-enabled chips, these first-half numbers may appear to reflect weak year-over-year growth. So Wall Street’s reaction is understandable.

But let’s look at AMD’s long-term potential. To that end, let’s consider AMD’s success with its AI chips, which is reflected in increased sales in its data centers and PC divisions.

AMD’s strong and weak areas

AMD’s data center business reported record revenue of $2.3 billion in the first quarter, an 80% jump from the previous year. The PC division reached $1.4 billion in sales in the first quarter, an 85% increase year over year.

Together, these segments accounted for $3.7 billion of the fiscal first quarter’s $5.5 billion in revenue. Both divisions have seen an increase in sales thanks to the advent of AI.

AMD’s data center business provides AI-enabled chips for computer servers. These servers are owned by customers like Amazon It is Alphabet to direct your cloud computing solutions.

Meanwhile, the company’s AI chips for PCs have seen strong sales with customers such as Microsoftacquired products from AMD to develop new AI-powered laptops and desktops.

Given the remarkable growth of the data center and PC divisions, why did AMD’s first-quarter revenue grow just 2% above the previous year? The other parts of your business suffered from the cyclical nature of the computer hardware industry.

AMD’s video game division saw first-quarter sales fall from $1.8 billion last year to $922 million. This was due to weak demand, which is understandable given that major gaming consoles like Microsoft’s Xbox have been on the market for a few years.

The story continues

The company’s products for the industrial sector also suffered a drop in sales due to excess chip inventory among its customers. This division’s first-quarter revenue fell to $846 million from $1.6 billion a year earlier.

AMD Long-Term Outlook

For investors who think about the long term, AMD shares are very promising. Company CEO Lisa Su noted, “We are still in the early stages of what we believe will be a period of sustained growth driven by insatiable demand for high-performance AI and general-purpose computing.”

Industry forecasts support his assessment. The AI ​​sector is expected to reach $184 billion in 2024, up from $136 billion last year and expanding to $827 billion by 2030.

This industry growth is reflected in AMD’s AI chip sales, which are constantly growing. Fiscal first quarter data center revenue of $2.3 billion represented a 2% increase from the previous quarter and nearly double the $1.3 billion achieved a year ago.

The company also expects demand in its PC division to increase. Lisa Su stated, “We see AI as the biggest inflection point in PCs since the Internet, with the ability to deliver unprecedented productivity and usability gains.”

Additionally, AMD estimates that revenues from its industrial businesses will improve in the second half of 2024. Additionally, Wall Street analysts believe the stock has upside. Their consensus is an Overweight rating for AMD stock, with an average share price of $195.

With AMD stock beaten after earnings and its AI prospects looking attractive, now is a good time to buy the stock and hold it for the long term.

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Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Roberto Izquierdo has positions in Advanced Micro Devices, Alphabet, Amazon and Microsoft. The Motley Fool has positions and recommends Advanced Micro Devices, Alphabet, Amazon, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The motley fool has a disclosure policy.

Is AMD Stock a Buy? was originally published by The Motley Fool