LNVGF - An Upgrade Supercycle Is Coming To AMD
2024-06-17 11:14:46 ET
Summary
- AMD has lagged behind the broader semiconductor index this year despite robust uptake for its Instinct accelerators in the heat of the AI arms race.
- The client segment is also benefitting from an early recovery in the PC market, propped by AMD's inherently elevated exposure to the more affluent commercial end-market.
- Paired with an emerging recovery in higher-margin embedded sales, reinforced by longer-term adjacent demand from AI momentum, the stock continues to underappreciate an impending upgrade supercycle.
AMD ( AMD ) has been a laggard compared to the broader Philadelphia Semiconductor Index ( SOX ) this year, despite consistent progress in ramping up its AI accelerators to support the industry’s transition to accelerated computing. The stock has largely traded rangebound in recent months, after paring earlier-year gains in March. In addition to regulatory barriers against AMD’s penetration into the Chinese market with its Instinct accelerators, the company is also grappling with intensifying competition amid the AI processor arms race.
Yet AMD’s data center segment continues to benefit from a robust demand environment, with growth remaining a function of supply availability. More importantly, its strong product slate, supported by the next-generation Turin server processors and MI325 accelerators coming 2H24, will likely bolster growth in the higher margin data center revenue stream. Meanwhile, emerging signs of recovery in its client segment are also expected to benefit from the upgrade cycle ahead. Specifically, strong uptake for the Ryzen 8000 series CPUs observed in Q1 underpins similar demand for AMD’s next-generation AI-enabled processors to support AI PCs. The gradual recovery in embedded segment sales heading into 2H24 should also restore accretion to profit margins in 2025....
An Upgrade Supercycle Is Coming To AMD