Despite its push into the burgeoning artificial intelligence (AI) market, Advanced Micro Devices (AMD) continues to face headwinds, according to Oppenheimer analyst Rick Schafer. Schafer maintains a ‘Perform’ rating on AMD, expressing concerns about the company’s long-term profitability amidst a declining PC market.
In a recent note, Schafer acknowledges the challenges AMD faces from its rivals, particularly Nvidia, which holds a strong position in both CPUs and GPUs. He argues that Nvidia’s dominance in the AI space, coupled with its established software ecosystem and hardware solutions, creates a significant barrier for AMD’s MI family of AI accelerators.
While Schafer acknowledges AMD’s efforts to expand its AI presence, he notes that initial sales expectations for its MI300 have been revised downwards. He also points to structural challenges from Arm Holdings, which further complicates AMD’s growth trajectory.
Schafer’s concerns extend beyond the AI market. He highlights AMD’s dependence on a shrinking PC market and the potential for lower gross margins in the gaming segment. While he anticipates modest growth in server CPUs and the embedded segment, his overall outlook remains cautious.
Despite these challenges, Schafer acknowledges AMD’s efforts to diversify its revenue stream. He highlights the company’s AI event, which showcased a roadmap for the MI family, including the MI325, MI350, and MI400.
Schafer’s revised sales estimates for the third and fourth quarters reflect his cautious stance. He projects third-quarter revenue of $6.70 billion and EPS of $0.91. For the fourth quarter, he expects revenue of $7.50 billion and EPS of $1.18.
It’s important to note that while AMD’s stock has performed well year-to-date, gaining 12%, it trades at a higher valuation than its peers, with a price-to-earnings ratio of 26 compared to the group average of 24.
The analyst concludes that AMD faces an uphill battle to gain significant market share in AI, particularly against Nvidia’s established dominance. While the company is making progress in its AI initiatives, its overall growth trajectory remains uncertain, with several headwinds ahead.
