Advanced Micro Devices (NASDAQ:AMD) is under the spotlight as it prepares for its Q1 earnings report. Despite high expectations surrounding the company’s potential in the artificial intelligence (AI) sector, it seems AMD has thus far struggled to compete effectively with Nvidia, which has maintained a dominant position in the AI chip market.
Bank of America analyst Vivek Arya forecasts that AMD will surpass Street expectations slightly, projecting revenues between $7.15 billion and $7.2 billion—about $50 to $100 million above consensus estimates. However, the overall outlook is tempered due to a significant $800 million write-off related to MI308 export restrictions to China. This adverse development is expected to result in a $300 million impact in Q2 and a staggering $1.4 billion loss by the end of the year.
Moreover, analysts predict that AMD’s profit margins will face significant pressure, with Arya estimating Q2 pro-forma gross margins to drop to between 42% and 43%, well below the expected 52% to 54% forecast.
Arya also elaborates that while the market anticipates AI GPU sales to reach $7.4 billion by 2026, he believes that downward revisions will align with his lower estimate of $6 billion due to ongoing competitive challenges and China’s market situation. It’s noted that AMD’s current 3xx series products are considerably behind Nvidia’s Blackwell in performance and software capabilities, with hopes pinned on the forthcoming MI 4xx series launch, expected next year.
Despite these challenges, Arya identifies a promising outlook for AMD in the server CPU market, where the company’s hardware matches up well against Intel’s offerings, benefiting from strong adoption in cloud and enterprise AI applications. He acknowledges AMD’s consistent performance and reasonable valuation but advises caution due to the competitive landscape.
Overall, analysts are somewhat optimistic regarding AMD, suggesting a moderate buy consensus with a price target averaging around $126.40, which indicates a potential upside of about 28% over the next year. Arya himself maintains a neutral stance with a price target of $105, suggesting a more conservative outlook.
In this evolving landscape, AMD’s future success will hinge on its ability to innovate and navigate the competitive pressures from established leaders like Nvidia while capitalizing on new market opportunities. The sentiment among investors remains cautiously optimistic, with potential for growth as the market evolves.