What Happened:
Shares of computer processor maker AMD (NASDAQ:AMD) jumped 5.1% in the morning session after the company unveiled its latest AI accelerator Instinct MI300X, at its Advancing AI event. As a reminder, AMD is a key player in the AI ecosystem, providing hardware solutions that enable the efficient processing of AI tasks. The Instinct MI300X is designed to meet the demands of generative AI tasks, from creating realistic images and videos to developing personalized medicine and powering chatbots.
AMD's CEO emphasized the transformative impact of AI on computing, highlighting the exponential growth in demand. As a result, it raised the expected market opportunity in the AI market, which is projected to grow 70% annually over the next four years to over 400 billion in 2027, nearly triple the previous estimate of $150 billion. But it's not all about the hardware. During the event, AMD highlighted the focus on building a strong software platform and fostering partnerships to make AI easier to use for everyone. Overall, the event highlights AMD's growing capabilities in the rapidly expanding AI market, which has the potential to drive new growth opportunities in the coming years.
Following the event, Wall Street analysts were generally constructive on the announcements and developments. For example, KeyBanc analyst John Vinh seemed incrementally more bullish. "We're encouraged that AMD has released a competitive AI GPU within a massively fast-growing TAM, with endorsements by many high-profile customers. We reiterate our Overweight rating."
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What is the market telling us:
AMD's shares are very volatile and over the last year have had 22 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 7 months ago, when the company gained 7.5% on the news that competitor, Nvidia, delivered an exceptional quarter that topped analysts' estimates across key metrics. Revenue surpassed expectations by an impressive 10.3%, driven by a record-breaking data center revenue of $4.28 billion. Notably, the company exhibited improved profitability, with both gross margin and operating margin outperforming expectations. Earnings per share beat by an impressive 18.8%. Inventory levels experienced a meaningful decrease during the quarter. In addition to the outstanding quarterly results, the revenue guidance for the next quarter surpassed expectations by over 50%. Similarly, the operating profit guidance exceeded Consensus estimates.
Founder and CEO Jensen Huang emphasized the ongoing transformations in the computer industry, particularly the advancements in accelerated computing and generative AI. He highlighted Nvidia's readiness to seize the opportunities presented by the anticipated trillion-dollar shift in global data center infrastructure from general-purpose to accelerated computing, as firms implement generative AI into their business operations. Overall, the company's blowout quarter, with its impressive revenue growth, enhanced profitability, and positive guidance, underscored its strength in the market.
AMD is up 96.7% since the beginning of the year, and at $126.21 per share it is trading close to its 52-week high of $129.19 from June 2023. Investors who bought $1,000 worth of AMD's shares 5 years ago would now be looking at an investment worth $6,470.
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